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For Air to

Expanding Horizons

Civil aviation in Europe, • an act1on programme

for the future

Expanding Horizons

Contents .Page

I. Chairman's Message 5

II. The Economics of Air Transport: 1. A growth Industry plagued by Poor Profitability 9 2. European Imbalances: High Costs in a Competitive Environment 12

Ill. Restructuring for Profitable Growth 1. Making the Internal Market Work

2. Removing Infrastructure Bottlenecks

3. Harmonising to Reduce Costs

4. Breaking Financial Straitjackets

5. Competing in a Global Market

IV. Ensuring the Right Balance 1. Airports and Air Carriers as Partners

2. Caring for the Environment

3. Facilitating Employees' Adaptation 4. Linking Modes of Transport

5. Air Transport and Government Interference

V. Appendices The Regulatory Landscape

Statistics Working Programme of the Comite

Members of the Comite

Glossary

17 23 27 29 33

37 39 43 45 47

48 50 53 54 55

Acknowledgements I wish to express my thanks and deep appreciation to my distinguished colleagues, the Members of the Comite, for their active cooperation, the spirit of mutual understanding and their commitment to the team task which they relentlessly demonstrated throughout the six months of our work and including the presentation of this report.

From left to right: Rene Valladon, Joao-Maria Oliveira-Martins. Henri Martre, Manfred SchOlch. Bjarne Hansen, H. H. The Aga Khan, Hernwn De Croo, Pieter Bouw, Geoffrey Lipman, Jiirgen Weber, Guillermo Serrano and Gonzalo Pascual.

I also particularly wish to thank the members of the permanent staff who, although small in number, skillfully managed to support on a daily basis the various undertakings of the Comite and made it possible to complete the task on schedule.

The Comite, set up by Commissioner Matutes, was able to work in total independence and nevertheless benefit from an efficient liaison with the European Commission.

Finally, I express the gratitude of the Comite to all the organisations, associations, companies and individual experts who gave us the benefit of their views and contributed so usefully to our perception of the situation.

-~k_. Herman De Croo

Chairman

CHAIRMAN'S MESSAGE An overview Who would have predicted, one century ago when the dream of Icarus became a reality; the prominence of aviation in our society today?

Every day, more and more people use air transport for business, cultural exchanges or tourism. More and more goods are carried by air. This increasing mobility, which is scarcely affected by the present hard eco­nomic times, runs ahead of economic progress. This phenomenon is particularly true in the European Union and can only widen with the disappearance of national borders, the creation of the European Eco­nomic Area and the development of rela­tions with the countries of Central and Eastern Europe.

Why the Comite des Sages? The Comite des Sages was set up to reflect on the future of aviation in Europe as an essential tool for economic and social devel­opment.

Its first finding was that the European airline industry is at a crossroad. The causes of this situation have been analysed by the Comite with only one purpose: to suggest practical remedies.

For six months it has listened to the often contradictory views of many knowledgeable people. It has contacted organisations, studied the many problems facing air trans­port, analysed data and weighed alterna­tives. The Comite has reached a broad con­sensus both on causes and on remedies. (1)

The root of the current problems In its early days as an infant industry, air transport depended on state support. It developed as a highly protected area of national economies, an integral part of government policy. All over the world, states exercised their right of sovereignty over airspace and their privilege to set up na­tional carriers. Almost regularly, these carriers were used by governments as an instrument to promote trade, or their "own"

(I) Two dissellling opinions were expressed: Mes.1·rs SchiHch and l'alladon mtthe issue ofgrowul handling services at

Commw1itv airports and Mr \lalladon on social issues.

aeronautical industry, or foreign political links or domestic employment - all without regard to the economic implications or commercial significance.

As a result, national air transport systems emerged, causing fragmentation and many inefficiencies. In this general trend, Europe was no exception. It still suffers from this heritage.

Some argue that basic characteristics of the airline industry are unique and therefore require their own decision-making rules and a distinct regulatory framework.

In a certain sense this is true. It is clear that, from a business point of view, international air transport is often subject to less than rational commercial decisions. These are based on traditions; national pride or simply on the fascination of an industry symbolising the ability of human beings to overcome natural limitations and to realise the dream of Icarus.

Of course, this fascination is primarily an asset. It implies an above-average willing­ness of managers and employees to work hard for the well-being of this industry. The crux of the problem is to reconcile this asset with rules ensuring that economically rational decision-making prevails. The European air transport industry will have a prosperous future only if decision-makers at all levels, including public authorities, manage to achieve this reconciliation. This job has yet to be done.

Today, technological progress and economic developments have profoundly changed the market for international air transport. The airline business has become a mass produc­tion industry. It markets its services in real­time at almost any point on earth. Global competitiveness has become the key to commercial survival. The need to identify and to assess strategic and practical options for managing transition from the past to the future is obvious.

At a very early stage of the work it became clear to all Members of the Comite that a major fact-finding exercise was required. For far too long debates had been largely in-

spired and conducted by those offering simplistic answers to complex problems.

The Comite was unwilling to accept mis­leading slogans and catchwords like "jungle of ultraliberalism" or "state support for lame ducks" which so often were the only avail­able substitute for a solid and honest analy­sis.

Instead, the Comite opted for a careful collection and examination of indisputable data and facts. Hearings with well-experi­enced experts and senior managers were held and an analysis of all written submis­sions was made. The results of an external and independent study on the cost structure of the European airline industry were taken into account. The outcome of this whole exercise is presented in this report.

A costly fragmentation Analysis shows that European airlines pay a heavy price for the fragmentation of their market in Europe. Airports and air traffic control systems are ill-adapted to present changes, because they are based on national and local interests rather than being part of a European concept. This practice has so far escaped the justifications of cost analysis and the competitive drive which would naturally result from a liberalised air trans­port system.

European airlines and airports also bear the cost of their own heritage: their productivity is far lower than their competitors' in other parts of the world, notably in the US.

The legal environment in Europe has changed. The Community has anticipated the coming global challenges by establishing the Single Aviation Market and dismantling the old national barriers to carrier designa­tion and market access. But in real life, the "level playing field" in this aviation market remains somewhat rhetorical. Governments, airlines and even Community institutions are hesitant. State subsidies, ownership control and other competition-distorting factors still prevent the system from operat­ing on even terms.

The three liberalisation packages for intra­Community air transport represent major steps towards developing the full economic potential of the Single Market. However, much remains to be done. The key recom-

mendations of this report are directly linked to a key finding: the overly-high costs of European air carriers require a major drive to increase efficiency at all levels.

The productivity gap of the European airline industry is based on various elements. Some of them are controllable by an airline's management. Others go beyond such direct control. They may nevertheless have a significant impact on the costs of an indi­vidual airline. Air traffic control and airport charges are examples of specific problems in Europe.

Above all, however, the Single Aviation Market exists so far only in law. In concrete economic terms, the structure of the Euro­pean airline industry is still very much oriented towards outdated national bounda­ries. For the European industry to survive as a global competitor, Europe's Single Aviation Market must be transformed urgently into economic and aeropolitical reality.

What is needed In the view of the Comite des Sages, here is what must happen:

- The internal market must be made to work by enforcing its rules and effectively addressing sensitive issues like slots, state aids, mergers and alliances.

- As a matter of utmost urgency, infrastructure bottlenecks must be removed. New provisions of the Maastricht Treaty should be activated to provide Community funds needed for establishing an efficient Single Air Traffic Management System and a truly European airport network.

- Future efforts to harmonise national regulations must be linked to a clearly demonstrated cost-saving effect.

- Innovative forms of financing investments must be facilitated by updated rules on taxation and ownership in order to help air carriers overcome their current financial impasse.

- A genuine Community approach to external aviation relations must be quickly established because this is vital for realising the economic potential of the Single Aviation Market and for the mutual interest of Europe and its partners in the world.

A fair balance of interests In addition to reaping the full potential benefits of the Single European Aviation Market, another important condition must be met. It is essential to ensure the right balance of interests between the airline industry and other related areas like airport services, environmental concerns and the justified interest of the workforce in not shouldering, alone, the entire burden of the restructuring process.

The Comite analysed all these areas with a view to defining a fair balance of interests. This has been, of course, a difficult under­taking because it means identifying the borderline between. objective requirements and subjective interests. Obviously, conflicts of interest are difficult to avoid when times are changing. This may explain why the relevant section of this report (1) contains two dissenting opinions. However, there was broad consensus that

- airport managements should contribute to improving efficiency and should, therefore, open ground handling services to competition;

- further improvements in managing the environment are required. These improvements should be based on a careful analysis of cost-effectiveness in order not to put additional burdens solely on the European air transport industry as compared to its competitors;

- adaptation of employees should be facilitated by flexibility and mobility­increasing measures. In this context the possibility of Community financial support should be examined;

- public authorities should use identical cost imputation principles for financing investments in different transport modes and should support improvements of complementarity between these different modes;

- governments and public authorities should abstain from intervening for noncommercial reasons in the operations of air carriers.

Close to the end of the work of the Comite des Sages, the European Commission's White Paper on Competitiveness, Growth and Employment, of December 1993 became available and was endorsed by the European Summit.

(I) See "Ensuring the Right Balance".

We found that the thrust of this document perfectly fits in with the main emphasis of our report. Both documents attach priority to making the Single Market fully effective and both emphasise the need for infrastruc­ture improvements as the most promising way to create new jobs.

The Comite is convinced that extra efforts to improve air transport infrastructure will immediately generate a high return to the European economy as a whole. There is no reason to further delay urgently needed projects.

A change of mentality After six months of listening to people, analysing problems and assessing ·alterna­tives, the main lesson I have drawn from this exercise is that old habits obviously die hard. Mentality changes are lagging behind technological, economic and regulatory changes.

Decision-makers in many air carriers, national governments, unions, financial institutions, airport managements and in EU institutions need to speed up their adapta­tion to the new challenges of a more and more global and competitive business environment.

The European air transport industry cannot afford a continuing lack of such mentality changes. Recognition of this very basic truth is THE key to entering better times for the industry, its employees and air transport users.

This change of mentality is, therefore, much more important than the accumulated wisdom of any Committee.

Herman De Croo Chairman

THE ECONOMICS OF AIR TRANSPORT A growth industry plagued by poor profitability

General The availability of a high quality air trans­port system inside Europe and to and from Europe is an essential prerequisite for overall economic growth. Dynamic develop­ment of trade in general and tourism in particular heavily depends on possibilities to organise face-to-face business contacts and to travel efficiently to regions where other transport modes cannot provide an efficient alternative. Similarly, cost-efficient cargo transportation is essential for promoting trade, creating new markets and improving the productivity of manufacturing indus­tries.

The direct impact of air transport on the general economy is clear: - In industrialised countries, these services

account for about 1% of GDP. - In Europe, airlines employ about 400,000

people.

However, the indirect impact of air transport is less understood. Consider these facts: -European airports (as distinct from air-

lines) employ about 500,000 people. - For each person employed at an airport,

there are two other jobs created in the catchment area. This means that one million people are employed in the catch­ment areas around European airports, solely because of the air transport industry.

-The aeronautical industry itself employs 400,000 people in Europe. Most of these workers are highly-skilled, using state-of­the-art technology that generates a higher­than-average contribution to the overall economy.

-The spill-over effect of the aircraft industry to other industries is substantial.

-Other related industries, such as tourism and shipping, are largely dependent on the air transport industry.

A report published in 1993 by the World Travel and Tourism Council (WTTC) esti­mated that travel and related activities

presently directly and indirectly account worldwide for more than 10% of world GDP, about 10.7% of world capital investment, and 10.9% of consumer spending.

Overall, it is estimated that some 10 million jobs in the European Community alone are related to the availibility of an efficient air transport system. Such is the present power of the European air transport industry. But what of the future? This role will be even greater, be­cause so many other growth industries in the next century will depend heavily on transport and telecommunications.

The importance of location in the air transport business A priori, the essential economic role that air transport must fulfill stems from the availibility of a network system and not necessarily from the homebase location of the airlines providing such services. From a user's point of view, it does not matter whether European, American or Asian air carriers provide the quantity and quality of the transportation required for economic growth in other industries. However, for a number of reasons, the homebase location of the airlines is highly important for the positive spill-over effects they have on the European economy as a whole. Air transport serves the public in many ways. The quality of this service depends­to a large extent- on where the focussing points (hubs) of an airline's network are located. There is a natural correlation be­tween the number of hubs and the homebase location of an airline. This makes it likely that the quality of Europe's air transport system would suffer if non-European air­lines were the only significant service pro­viders in Europe.

In addition, it is clear that an individual airline management's ability to identify market opportunities depends very largely on geographical proximity to the market in question.

Moreover, it is a simple fact of life that the aircraft manufacturing industry cannot develop its business without a solid cus­tomer base "at home".

American aviation history (and other exam­ples) illustrate the close link between the presence of a high-volume air transport industry and the potential for running an efficient and competitive aerospace industry. For European manufacturers, the presence of a European customer base is equally essen­tial to stay in business, develop, and keep Europe at the forefront of technological development.

Therefore, a genuine European Air Transport Industry is a key industry for the overall economic welfare of Europe. The pace­making function of air transport for general economic growth and the quality of its service depend to a large extent on the homebase location of the airline. In view of this, creating stable conditions for the economic and financial well-being of the European airline industry is essential for building Europe's sustainable competitive advantage in the global air transport market. Therefore, this must be a prime concern for European economic policy.

Overall economic development: strong growth and poor profitability In an historical perspective international air transport has undergone dynamic develop­ments. During the 1980s world air transport in­creased by an average of 6% p.a. in volume terms and by 4.0% p.a. in real monetary terms. Such average growth rates are above rates of growth in GDP and indicate that international air transportation is, in addi­tion to its importance for overall growth, already in itself a growth industry.

300

250

200

50

Graph 1: Growth of air transport worldwide.

. WORLD GOP

. lATA RTK

. lATA REVENUE

OL_ ____________________________ ___ 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

1982= 100 Source: lATA - European Commission

Air Cargo Developments for air cargo show equally favourable trends:

250

200

150

50

Graph 2: Growth in air cargo worldwide

• woRLD GOP . lATA TKP

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

1982=100 Source: lATA -European Commission

Air freight and express services are an important sector of the air transport system. The character­istics of this sector call for specific attention in Europe. Therefore, liberalising rules have been enacted in the Community alongside rules for passenger services. There is room for further facilitating the free movement of goods by air within the Single Market, in particular as regards clearances at airports . This report contains a recommendation regarding air/rail cooperation.(]) The development of air cargo fits in a Community policy on Trans European Networks.

A market relating to carriage of mail, documents and parcels has developed alongside the cargo services in response to market needs. Interna­tional operators, called "integrators" essentially combine air and road transportation . With a fleet of over 1,200 aircraft they now represent an important sector of the evolving cargo market.

Trends for the European airline industry have shown similar development patterns if all modes (scheduled, non-scheduled) are considered . However, it is noticeable that carriers in the Association of European Airlines (AEA) have encountered a below­average growth in monetary terms. In other words: so-called European flag carriers are losing market share.

( 1) See "Linking Modes of1/'ansport"

250

200

150

50

Graph 3: Growth ofschedu/ed European carriers (AEA)

. AEA REVENUE

. EC GDP

. AEA RPK

OL_ ____________________________ ___

1982 19831984 1985 19861 987 1988198919901991 1992

1982=100 Source: AEA - European Conunission

In this context it is significant that independ­ent air carriers in Europe (notably charters) have experienced much stronger growth. This indicates their ability to seize market opportunities in a liberal regulatory environ­ment.

Graph 4: Growth of independenr carriers in Europe (ACE) (notably charters)

350

300

250

200

150

50

. ACE REVENUE • Ec GDP . ACE RPK

OL_ ____________________________ ___

1982 1983 1984 1 985 1986 1 987 1988 1989 1990 1991 1992

1982=100 Source: ACE- European Commission

Charters The non-scheduled air services have developed considerably in Europe over the years and played an important role in the promotion of travel and tourism, with one out of two air passengers in Europe traveling on charter flights.

Under the new rules on market access, the distinction between scheduled and non-scheduled services has somewhat blurred as the flexibility has increased : independent carriers may choose to operate scheduled as well as non-scheduled services between Community airports. The traditionally distinct markets are now often overlapping, which offers new opportunities for growth .

The average profitability of air carriers differs significantly from profitability in other industries. However, the air carriers' favourable overall output/ demand rate has never produced an above-average profit margin since 1982. Instead, airline profitabil­ity has always been extremely poor, if compared with other key industries. Since 1990, the airline industry has suffered specially high losses.

Table 1: Net profit margin of world airline industry

Year ~argin

1982 -1.4 1983 -0.7 1984 1.9 1985 1.9 1986 1.2 1987 1.7 1988 3.0 1989 1.9 1990 -2.2 1991 -1.8

Source: ICAO

With the exception of air carriers specialised in leisure travel, Europe is no exception to the rule that scheduled air transport has generated poor profits.

Table 2: Average profitability rates in Europe

1989 1990 1991 1992

Chemicals 5.29 3.90 2.70 1.50 ~etallurgy 3.59 2.52 0.58 -0.33 Car 6.42 2.27 2.15 0.98 Telecom 7.33 7.15 5.65 3.42 Air Transport I (AEA) 1.9 -1.88 -1.15 -3.11 Air Transport II (ACE! 4.62 3.24 3.63 3.99

Source: AEA -ACE European Commission (Panorama de 1' /nduslrie Communautaire)

Labour productivity of the European airline industry (AEA members) is below average, if compared with other key industries.

Graph 5: Turnover per employee

180

160

140

120

1986 1987 1988 1989 1990 1991 1992

• cHEMICALS • TELECOM EQUIP. . STEEL • AIR TRANSPORT

Source: AEA- Europecm Commission (Panorama de I'Industrie Communautaire)

The comparison between annual percentage change of GOP and operating revenue of European scheduled airlines reflects the close relationship worldwide between GNP­growth and growth in the airline business and, thereby, the cyclical nature of both.

Graph 6: World RPK versus world economic growth

RPK percent change

20

1 970

WORLD GDP . WORLD RPK

75 80

Source: Boeing

85

GOP percent change

20

199 0

Direct employment in the airline industry grew by only 1.9% during the 10-year period

Table 3: Employees of European Airlines (Thousands)

Change in % 1990 1991 1992 92/90

Scheduled 345 341 332 -3.8% AEA Charters ACE

23 25 25 +10.3%

Source: AEA- ACE- European Commission

1982-1992. lATA member airlines now employ a total of 1,490,000 people. Total employment staff of AEA members pres­ently stands at 332,000. lATA and AEA members have reduced staff numbers by approximately 3.5% during the most recent economic downturn. However, it appears that independent European carriers (non­AEA) have increased overall employment even despite the downturn. (See table 3)

Until 1990 capacity and demand followed very similar patterns. Market disruptions caused by the Gulf War and economic recession in many parts of the world have produced an imbalance between capacity and demand.

Graph 7: Lvad facto rs

69%

66%

65%

64% . AEA . lATA 63% 1

62% L. --------------------------------1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1

Source: lATA -AEA

European imbalances: high costs in a competitive environment

Overall operating costs

1 9 9 2

The weakening financial position of the airline industry is a global phenomenon and the European airline industry is no excep­tion. However, European airlines lag far behind their competitors in adapting their cost structures to prevailing market condi­tions. Thus European air carriers suffer from specific handicaps in the global market. Europe will need to address these handicaps to create conditions for a sustainable and competitive European airline industry.

In 1992, overall operating costs of major European airlines (AEA) measured by operating costs per ATK, were about 48% higher than the operating costs of major US . airlines as illustrated by Graph 8.

Graph 8: Operating costs in US cems per Available Tonne Kilometres 1992

140

European Carriers 120 • US Carriers

• European Cost Curve • US Cost Curve

100 • Asian Carriers

80

60

40 ----------~Q)ra:n~ta;s------------------------• singapore Virgin

20 o~~1-.~o~o~o~~2-.~o~o~o~~3-. ~o~o~o~~4-. ~o~o~o~~s-. ~o~o~o----6 -.o--o-o---7--.o--o-o---8--.o--o -o---

Source : Avmark

Profitability and financial costs Economic recession, high operating costs and high financial costs (resulting from high interest rates and eroding debt/ equity ratios) caused European airlines to lose 2.0 billion US dollars in 1992 (see graph 9).

Losses incurred since 1990 mean that cash­flow generated by European air carriers is becoming increasingly inadequate for financing future investments from own resources (see graph 10). Unless profits are restored and significantly improved, the debt / equity ratio may reach a level of 80/20 in 1995. This would undermine the airline industry's ability to finance investments through traditional financial instruments (see graph 11).

In mil lionS

350

250

150

50

Graph 9: European airlines'1992 net results

0~~~~--~~~~--~~_,~.,-

·50

· 150

·250

·350

·450

·550

·650 '-::-:--::-::-::--::-::-::--:-::-~~~---::----::-~~~~~-=­BA SR SN OS AZ AY TK SK El TP OA LH KL I B AF

Source : Credit Lyonnais

Average stage length ( Km)

Although such a financial impasse is not unique to the European airline industry, a number of specific problems cause European carriers to suffer more than other airlines, in particular US carriers:

- A lack of financial instruments comparable to those provided by Chapter 11 in the US bankruptcy law.

- Less favourable terms for purchasing equipment (less favourable tax-lease treatment) .

- Exchange rate risks . - Limited access to US dollar market as a

by-product of national effective control requirements.

Graph 10: Eight largest European airlines' investment finan cing: cash flow and new debt

Source: Credit Lyonnais

Graph 11: Eight largest European airlines ' capitalisation: equity and total debt

• Debt • Equity

19901991 1992199319941995

Source: Credit Lyonnais

Labour costs There is a widespread belief tha:t high salary levels and high social costs in Europe repre­sent a major impediment to better cost efficiency. However, the weakness of the European airline industry in the area of labour costs stems overwhelmingly from low labour productivity rather than from higher salary and social costs.

a) Airline salaries versus average national average salaries A comparison of salaries in the aviation industry with salaries in the economy as a whole shows in graph 12 that air carriers pay- on average- higher salaries than other sectors. It should be emphasised that this is also valid for the highly-deregulated US air transport market, where labour costs have risen faster than revenue developments (see graph 12).

Table 4: Analysis of European versus US labour costs and productivity 1992

US- European Percentage airline airlme difference

industry industry Financial Measurements (US$) Gross salaries per employee 40,534 Social charges per employee 11,722 Total labour costs 52,256 per employee Total labour costs per ATK Social costs as percentage of total Physical productivity ATKs per employee Departures per employee Block hours per employee * US cents Source: Avmark

15.55* 22.43%

336,019 13.24 27.15

44,493 10,573 55,066

21.27* 19.20%

258,908 6.28 12.98

10.26% -9.80% 5.38%

36.76% -14.40%

-22.95% -52.57% -52.19%

Graph 12: Average airline salaries versus average national levels - 1992

Average airlines salaries 3.0

2.5

2.0

1.5

1.0

0.5

versus average national levels 1992

• European - Private • us • European - part or fully state owned

o.o ~_.._.ULI-.J .. ._.I.Jiii.ll ... _._._.._. ... _

Source: Avmark Note: National average refer to commercial, i.e. non­government employment

b) Salaries and social costs: US versus Europe On average, total labour costs (salary plus social charges) of European airlines amounted to US$ 55,066 per employee in 1992. The corresponding amount for the US airline industry was US$ 52,256. In other words, the US/European comparison of salaries and social costs does not indicate significant differences beyond the margin of "normal" currency fluctuations.

c) Labour productivity Both the European and the US aviation industries pay higher-than-average salaries, and there is no substantial difference be­tween US and European salary levels. The real difference between the two continents is in labour productivity.

Table 4 indicates that European labour costs per employee are 5.38% higher than in the US, but due to much lower labour produc­tivity in Europe the total labour costs in Europe per available tonne kilometre (ATK) are nearly 37% higher.

User charges Over recent years the airline industry world­wide has experienced a significant increase in costs beyond management control, nota­bly landing charges and en route charges. Table 5 indicates that for lATA carriers cost increases in areas beyond airline manage­ment control have been considerably higher than average cost increases. Europe is no exception to this rule.

Moreover the European region suffers from extraordinarily high user charges.

' I

~

Table 5: International scheduled services 1987-92 Unit costs 1987-92 in current$

US$ US$ ATK ATK Percent 1987 1992 Change

Flight Deck Crew 2.8 3.4 +21.4 Fuel & Oil 5.6 5.3 -5.3 Flight Eq. Deprs 3.9 5.2 +33.3 Ins / Rental Maintenance 4.3 4.7 +9.3 Overhaul Landing Charges 1.7 2.2 +29.4 En Route Charges 0.9 1.6 +77.8 Station & Ground 0.9 1.6 +12.3 Cabin Attendants 5.0 6.1 +22.0 Pass.S'vce Ticketing 8.2 9.0 +9.8 Sales / Promotion General & Admin. 2.5 2.8 +12.0 Total 39.8 45.8 +15.1

Source: lATA

Airport charges for scheduled European airlines represent 4 to 6% of the operating costs, compared with less than 2% in the United States. This relative difference has even more impact on ATC-charges where no en-route charge exists for domestic US traffic.

Graph 13: 1993 Representative airport charges in US domestic and intra-European international operations

(for Boeing 737-300 aircraft) Source: Avmark

u.s.$ 3.000

2.500

2.000

1.500

1.000

500

European airports average S l ,539* US airports

average $505**

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3: ~:i~CS2:~ <DO < I z

• Including security taxes on tickets at Amsterdam and Lisbon .. Excluding the 1 0% domestic ticket tax

Table 6: 1992 en route navigation charges per ATK

European short hauls Euro-majors Asian carriers US majors US domestic carriers Source: Avmark

5 cents 2.4 cents 1 cent

0.2 cents 0

Table 7: Trends in representative airport and security charges paid by airlines at European, US and Asian airports. 1988-1993 average annual charge (%) in:

737-300 747-400 Average of the charges* charges * two aircraft

types Lisbon +13.3 +12.9 +13.1 (+16.0) Rome/Milan +7.6 +9.6 +8.6 Frankfurt +9.2 +5.3 +7.2 Vienna +6.5 +5.0 +5.7 London (LHR) +5.9 +4.5 +5.2 Madrid +4.4 +5.4 +4.9 Paris (CDG/ORY) +4.0 +4.7 +4.4 Copenhagen +3.6 +2.8 +3.2 Amsterdam +2.2 +2.8 +2.5 (+5.6) Zurich +1.2 +1.6 +1.4 London (LGW) +2.9 -0.8 +1.1 Dublin 0 0 0

European average +5.0 +4.3 +4.6 (+5.2)

Los Angeles (LAX) +35.4 +42.7 +39.1 (+24.3) New York (JFK) +16.3 +9.4 +12.8 (+12.1) Chicago CORD) +7.2 +11 .7 +9.5 (+8.1) Houston (IAH) +0.9 +8.8 +4.8 (+4.1) Dallas/Fort Worth +4.2 +2.3 +3.3 (+4.2) Miami -2.8 -2.6 -2.7 (+0.2) Atlanta +3.0 -8.9 -2.9 (+1.0)

US Average (excl. LAX) +6.1 +4.2 +5.2 (+5.7)

Hong Kong +14.6 Sydney +14.0 Singapore +0.7 Bangkok 0 Tokyo 0

Asian average +3.2

* Only what airlines pay. The figures in parentheses show change when all ticket taxes and-passenger charges paid by passengers are included.

Source: lATA airport and en route aviation charges manual- Avmark.

With regard to airport charges, US domestic flights do not require expensive border control procedures. Many US carriers own terminal buildings so that they incur airport costs themselves and pay less fees . In addi­tion US airlines have much control over airport investments and charging policies.

"""'·

( 16

Recent trends in airport charges are an additional problem for the airline industry. At certain airports, increases in charges (including security charges) have been clearly above the overall inflation rate (see table 7), thus hampering the efforts of airlines' management to improve internal cost-effectiveness.

Graph 14: Comparison of airpon charges (Boeing 737-300)

1600

1400

1200 • Charges paid by a irli nes

1000 • Charges paid by passengers, either directly

aoo or through ticket taxes

600 $ 505

us domest ic

Source : Avmark

$ 1,539

Intra -European international

Part of the differential in air navigation charges is due to differences in financing air navigation services. In Europe governments recover air traffic control costs either through the aircraft landing fee or through a separate fee . In the US, the passenger bears the burden for air navigation services through the 10% ticket tax imposed on air travel within North America_ However, even inclusion of the ticket tax would not take away the significant cost advantage that the US industry enjoys in this area. Levels of air navigation charges have rein­forced the US/Europe differentials in total user charges. Over the past five years the unit rates charged by some Eurocontrol countries have soared by double figure percentages annually.The average increases since 1988 have been as follows:

Table 8: Average annual increase en route navigation charges since 1988 (local currencies) UK +14.5% Italy Germany Spain Portugal France Denmark Netherlands Switzerland Source: Avmark

+14.1% +10.5%

+6.6% +6.0% +6.0% +5.3% +2.0% +2.0%

Fuel Costs The European airline industry suffers from 15% higher fuel costs compared to the US industry. In 1991/92, European airlines's fuel price per gallon was 10 US cents higher than the US. Three to four cents of this total are attributable to differences in distribution costs, a different market structure, a rela­tively weaker negotiating power, and per­haps contracting and hedging skills. Fuel handling charges at European airports account for another one to two cents. Differ­ences in airline networks (related to certain parts of Europe and Africa) add another cent while basic oil market differences account for four cents a gallon.

Yield development The impact of poor cost-efficiency of the European airline industry has been addition­ally accentuated by declining yields. Overca­pacity created by overly optimistic forecasts, plus market disruptions caused by the Gulf war and worldwide economic recession, have put downward pressure on the average level of air fares and rates, and has reduced operating margins.

Table 9: Real yield developments 1988 1989 1990 1991 1992

US cents!ATK lATA 65.6 63.2 AEA 88.2 83.4

Source:JATA - AEA

Conclusions

62.8 87.7

61.6 88.8

60.1 83.4

The current economic and financial impasse of the European airline industry results from both the impact of recession and the indus­try's own major structural problems. In other words, serious problems will remain once current overcapacity is eliminated by future growth of air traffic.

Above all, a major cut in costs is urgently required. This cut must cover more than just management-controlled costs. Costs beyond direct airline management control (notably user charges) are extraordinarily high in Europe. This puts European carriers at a competitive disadvantage in the face of global competition.

Only significant restructuring efforts will allow European air carriers to restore sus­tainable profitability and thus break through the present impasse.

RESTRUCTURING FOR PROFITABLE Making the internal market work Background The Third Package measures and related competition, CRS and slot-rules have estab­lished legal conditions for gradually trans­forming the fragmented European air transport market place into a single competi­tive market based on equal treatment for all Community air carriers, irrespective of their place of establishment, their operating patterns and ownership.

With the establishment of the Single Euro­pean Aviation Market, the tradition of 12 Member States with 12 separate flag carriers is losing its economic and aeropolitical justification.

The so-called "flag carrier" concept is now outdated, mainly because it is incompatible with the need to make the European airline industry competitive on a global scale.

The Comite believes that the Single Euro­pean Aviation Market cannot become an economic reality, until all parties involved (carriers, employees, government authori­ties) recognise the crucial need to drop the concept of "national carriers" in favour of a market-oriented approach to decision­making.

No rollback There is no way back to the previous era of national protectionism.

The Comite firmly advises against any rollback of liberalisation. This would be inappropriate and self-defeating. It would render the global competitiveness impossi­ble.

The Third Package and related competition rules provide an adequate framework for the development of intra-Community air services in a market responsive environ-ment. ·

The EU has gradually moved to liberalise regulations on air transport and to achieve a single market in this sector. The "First Package" (December 14 1987) contained measures by the Council on fares, capacity, market access, group

exemptions and application of competition rules. The "Second Package" (July 27 1990) contained more liberal rules in the same basic areas, leading to the "Third Package" (July 23 1992) which fully liberalised tariff setting, capacity, market access (with a temporary regime for cabotage) and introduced a regulation on operating licences.

Practical effects of the Third Package which applies since January 1 1993 have so far been moderate because the general economic recession has discouraged full use of the new opportunities. Instead, airlines' first priority has been consolidation since the inception of the Third Package.

Overcapacity in the market dates back to decisions taken before the Third Package came into force. It is obvious that many Community air carriers sharply increased capacity during the run-up to the internal market. Between 1987 and 1991 the number of seats offered on Community routes increased by 53%. (Source: Institut du Transport Aerien). Obviously, many Com­munity air carriers have attached priority to heavy capacity expansion to prepare for European liberalisation instead of address­ing first the cost problems.

Despite current economic difficulties, Mem­ber States have not used the safeguard provisions, provided by the Third Package. These provisions may be called upon when there is a drastic need to do so.

r'"!":;!:T~~~~-:r~~;;;.;-,-.:~·-::~-. ~. ~--::·~-·~--:----------,

!: 'General Recoinmendations . , : ·.: . · · .. ,. i:::~~tibe'ralisat10'rt' b(the',iriterna(m'~rk~tas. ··. ~;;,'j·•:'.·~~.·~;· ·;, ····,".:·.,;·,: ... ~: .,·, -·~·. ,.,·· '.:· -··; "• .... ;, : .•;.- ~ :~".,,, ~; . ' ·· .. ' ·-~l

i;'i'iriow' d~fiH~d':oy·,can1&tinityAa·w~snould: ·; 1 !',,;,;_.~e fully:i.n}},;i~me~ted ~ih 'tile.' rrii:itk~h:· ·' •· · · 1 1 <pl~ce an~i.alrrep-tainipg d!scrimi~a.tory ·1 !/·'9b~tad~~';to)aii'cQll1petitio:ii. sho.illd .be.·: ,

~1;:.:··t.·;;~t.~ .. ,~~f.'f;·:·~¥~~. ·~.~.x~itii·,h··.i;~~~.·;~.·J~i.,~~~··;··'·;::'·.·;:,.';····,:J ".:cariiers:muSt~be end.ed at ail levels. . . l

~:;~~~~~{~~:l~~~~~~;;r(~~~~~·b:.~~ait·,,;···:.: .. ·.;·:~,:J :• }~itl1 b)t'J$e Q'f. ThircH?~~kage ~a'f~guard· J ·~:·~·~laU'~t;s::~xisting s(lfegtiards'againsf . "l ..; :;'\9-<)..wnwa~<;l:spirals" .in .aidar~~sand/ · . · 1

irf~tpt~:V·ent1iig ;~efiow:i/firiaricial da'ntage to .. ;" J nc~;:·~~· ~-I.:·~~ .. :::~ii.2J1J:~~~::2:2~~~-l!J~:L~:~~~:Ji~~~;i;ii.:.:~::·~~.:~:;

·the air cari:iets allow for temporary intervention in extreme cases.The

. Comite considers th<!.t these safe~ards are sufficient: · ·

" ~---·--·-~ ---~--·-·-·· -------------- ------· -----. ----·- --·-· ........

Overcapacity

Background

- .J

Present overcapacity of Community air carriers was caused primarily by overly optimistic traffic expectations a number of years ago. Overcapacity was further aggra­vated by market disruptions due to the Gulf crisis, economic recession in many parts of the world, as well as by state aids and the far-reaching protection offered by US bank­ruptcy law, the so-called "Chapter 11".

Occasionally, EC competition rules may have prevented air carriers from consulting each other to rationalise capacity on routes where they were competing.

Global overcapacity has caused more than 1,000 aircraft to be withdrawn from service worldwide.

~-~~m~end-;tions· . · . · l I ·-,iJ~e task of~d~hling with overcapacity

I must be left to airlines, working on a I c<;>mmercial basis. This is not a task for !

! government authorities.· . :. , j I.- ·Interf~rence'ih .opehitioll'; ofindividual .. I aitlines by government mithorities- I ! apart from public service provisions · 1

t tmder the Third Package- is not in.line

1 :i~~;~::~!~r~~·i1:!~z:.·t~c~i7tt;:t-· · I 1 ference should not be allowed. . . /

I· -~f~;:~.~:~~~~~;~;~;~~~;~~~!t~~~~of II

the Treaty:s competitiol:l:.tules should ~ot unduly inhibit airlin~s' effort to sqlve their problems by 1neans of .

.. yc?I~tr.ry agr~e~,ent~;-'/.~;'· ... · C: ~c~:-; · -A~ ·a policy guideline 'for .the near future, ' . the European Commission should not object to bilateral agreements betweep I

f. iif.~~Ci~ri~~s .~~l<}.ti~g ·~9/flP.,a~i,tY: ir.<':,·, ;: ... ; j 1 Iridivtdual markets ang ·concludeq pnor

toOctober 30 1995 (i.e. including the winter s~ason'1995/1996), provided·

, tpq.t,; . .. ·. :'i~ .... ;.. .., ... ,c- .· . ".:~.· ... 1

.. -~'a). these 'agreein.erits~a~e,··yoluntary•and

l. · that any partner may withdraw from

· them wit.hout penalty; . . · · .. :~)th·~re ar~!'no}~gal otpractiql qb~ta- I .. ~'~<:des to'fr~~·a.c:cess·.to:the ina'rket':.:, .. ·· · l

r-~--~~--------:-~--·-,-.---:-----~::--"-~r,::-- ........ ..., r concerned by any carrie'£, whether' dr : i l not a party to such agreement; I 1 c) wh~n such agre~men.ts !lr~. reached, •. I ! they are, onaJ::l irH:tividual'bilsis, duly . · reported to the European· Commis- ' · j

sion (and approved with minimum \ bureaucracy). It is recommended i that the EurqpeariCommis'sion • clarify legally just how ahd when ;' capacity discussions betWeen air carriers can be held, and how long th~y c~n last. ,J"his ~l~~i{~~~'t~pn·\. · · .. I should be published in the Official · · ! Journal. .i

i - The Comite furthermore urges the . 1

European Commission to ca.reft]l~y . ·. · I monitor' the impact. of the exis'ting blo'ck · j exemption on joint ventures. In due

. course, the C~mmission should present . 1

1 a report evaluati;ng the,, impe<_:~ of this· .. >.-.• 1

I block exemption on' aidine r~s'ti·ucturi~K '·'I ! in Europe. . · . ! L_____________ . . _____ j

Market access

Background Experience has occasionally shown that current legal and aeropolitical uncertainties badly disrupt airline planning in relation to access to intra-Community routes. These uncertainties exist despite a Council Regula­tion on this subject which contains an entitle­ment of Community air carriers in this respect.

Market access rules are not always receiving sufficient, consistent or swift enough imple­mentation from the national civil aviation authorities concerned. In particular, the implementation of certain market access rules that are hedged by safeguard clauses, such as those pertaining to cabotage or exclusive concessions, is often hampered by a reluctance of national authorities to act quickly, and by slow enforcement at Com­munity leveL This makes corporate planning very difficult and delays quick response to market developments.

I

Gi~1-~~~~~~~t~Ti~lf~n:i~iofl~J~:~~;~~~~ entitlement to enter a markets}lould, b~: . '! taken by Merqber States'·authorities . , · ! within a mci~um perio#. o.f::15 day~ ... · .·. j

f~S~f~g~ard,~ f<:!!lt~.~g • t_¢. ~~p,o{~~~- ~r ,:, ... ··: ·, :,.:).i:~~ ~· ~xclustve col}cesstOf1S should. lie applied':,"/'

H) a way which is transparent '(md non/ ;:;• discriminatory, not only in legal terms, : .. but also in its practical effects .. : . ... ,

·----'---'-·:..,.· ~"' ::..:...;

Tariffs

Background Community air carriers are basically free to set fares and rates, as stipulated by the Third Package provisions. Such_ freedom is a precondition for ensuring the nght framework for market-oriented commercial decisions by airlines.

!herefor~, Member States' and Community mtervenhons are, a priori, unhelpful. The addition of essentially bureaucratic con­straints should be avoided. It would be counterproductive in today's economic climate. In this context, it should be stressed that Third Package safeguards on fares and rates are, as a rule, applied on the initiative of Member States before the European Commission becomes involved. So far, this right has not been exercised by Member States. ·

Usually, in a competitive market, carriers with the lowest costs set the prices. Conse­quently, Community air carriers will need to change from "cost driven pricing" to "price driven costing". This is a painful but neces­sary process which should not be delayed or avoided by systematic use of safeguard clauses.

In specific situations yields may even fall below the cost level of all operators, even the most efficient. Because of certain economic features of air transport, such as high capital costs -which drives the need for high utilisa­tion, and the perishable nature of the prod­uct, airlines are inclined in a competitive market to sell this product below cost. Economic recession and overcapacity exacer-bate this tendency. ·

The continuing operation of bankrupt carriers, made possible by state aids or bankruptcy law, may yet worsen the situa­tion.

Against this background, the exceptional use of the safeguard against "downward spirals" in prices must remain possible.

Given the overall economic environment on the one hand, and the benefits to the con­sumer of interlining on the other hand, the air transport industry should have an instrument for consultation on fares and rates within the framework of EC competi­tion rules. This applies to both the EC block exemption and the US antitrust immunity.

The borderline between nonbinding tariff consultations and a price cartel is a sensitive issue which requires well-balanced action from competition authorities. This is particu­larly true during difficult times when the pressure to improve revenues may mean that consultation on fares and rates have a greater impact on the market, even without binding arrangements. The application of the block exemption on air fares and rates should take these facts into account. This will ensure that financial strains in the airline industry do not mean, in practice, that competition rules are applied in a more stringent way.

l"''i;~6rii~~rid;t·iciri~-.. ··:·;:·::::,::;:~·:::-:~ ., .... ,~. . . ·. \ - Mem]JerSt~tes anci:the Europeart'' .. · .. ·.· J Com.~is~ion should;':as a rule, abstain 1 •. f~o~)!lt,erve.ntienrin :~{le pricing policy' I'; of· airjarr!ers: The:x;·sl).ould act o.nly in_, I · ·extreiT1~ ~ases·. · ... · · . : :· .. · · .. ·

"·Where 1t 1s, demonstrably. required by the ~everity of the situation, the appli· . cat~on' of ~afeguards:slwul!f be <;:arried ··: outJ~.'\~i#'tp~~,·llO~~mt~aucratis :Way; .: •

..:· In~pt:esen.t diffkul(ecoriomic circufil~. ·· · : .· stancei{the'neeci fcirihcreased·rev~:;;: . enue$ should be recdgnised. . ~ The -EU.ropeari Commission should

· .. :. ·~pplythe.group'·ext:;mption (:m fa"res ·

' ,:::f~~f~J~$}f.li ~;~l~x~~;,~;man.l}.er; t.akil}g . ll,i.to' account the' overall economic •... .. situ~tion.~rid.its implitations ·for:·.':: · pridp:g ciecisions, as well as the n~ed .to achieve a s:ol).stimer-driven market. I

' . ..On: thf,North Atlantic,Memb.er- States, · ·::.)11~g,lj~;qpean.C6fhi;nissi0h and us-~ ·• ; · :!

1 .. · anHtru~t authorities. should work . . . . . ; towards ensuring the continu~tion of a·· ·I flexible application ()f antitrust immu- ! .nity:fo~ TAT A tariff ·consultatio~s. 1

_; .... ,_ .... : .. ;:..! ''"'' ,;;,:.::~ .. ·- ~''""'"· ... .'.:'":: .. .'.:.':: .......... _.......... .: .. .. :.: ..... 3.:.:1

Predatory practices

Background Airlines occasionally resort to anticompetitive practices of various kinds. Price dumping, unfair marketing devices, rescheduling that targets individual com­petitors, slot manipulation and other prac­tices which deprive airlines of normal access to the market clearly distort competition. They should be banned, especially when they constitute an abuse of a dominant position ..

i Rec~mmend-~tl~n l 1· As a rule, competition autho,rities should I !· )nove qui9kly .• ·tq enfor~e rules against , i ft:p~~dat'OJ:y pia'2tk~s<:brother _ptC}cti~es · · '] I having similar effects. Authorities · i I· should give immediate attention to ' l· complaints aJ1d make decisions l·' pro111ptly. To this e~d, interim measures K:·snould'be tikenJ::•y'hep. ~eeded to_ hvoid · · ·!'

!:· lasting damage to c:atriers targeted. by . ':l Lthese praCtices. _____j

Frequent Flyer Programmes (FFPs)

Background The purpose of Frequent Flyer Programmes is to retain a passenger's loyalty. FFPs have recently acquired added value, in marketing terms, by linkage to strategically important computer reservations systems and customer databases.

Despite their costs, which are higher the smaller the carriers, FFPs appear to be viewed by most scheduled service carriers as essential to remain competitive.

The EC Commission clearly recognises both the competitive pros and cons of FFPs and has them under review.

. . ,_, ... :--::--.. -. -.• --;·:--:; .. • .. ~:o .. -·-;;-· ·---,--,..--~, ..... -.:·--.,..) Recommt:!rid(lhon ·· ._ .·· ·· ·· ' . . · .. · · ' i The Europea'n Comml.ssion in monitor- ' ing the evolution of FFPs, in particular

: .the effects of FFPs on the functioning of i

[\the Singl¢ Eurppean)vfarkej~ spould . :,l r:. keep ill mind:th~ir vah.ie ·a's a global . .. . . . ~-· competitive'to6l'and should avoid action · which limits·the ability of European ! · airlines to compete in global markets.

L~-· ---~--· ...... ·~--------· -~-------------J

Airport slot allocation

Background Priority must be given to providing suffi­cient airport capacity. This is a condition for equal access to airport facilities. It is a fact that congestion at some key airports has reduced the possibility for new entrants to take advantage of new business opportunities offered by the Third Package. This means that rights which have been legally granted are in effect not available, thus negating the concept of equal treat­ment.

The Code of Conduct approved by the Council of Ministers in January 1993 sets out common rules aimed at ensuring neutral, transparent and nondiscriminatory decisions on the allocation of slots at congested air­ports. The objective is to avoid situations where, because of a lack of available slots, the benefits of liberalisation are unduly denied and competition is distorted. This is why the Code of Conduct must be uniformly applied throughout the Community. The continuation or revision of this Code will be decided by July 1 1997, on the basis of a proposal to be submitted by the Commission no later than January 1 1996.

The Code of Conduct may help to ease problems. However, considering the existing and future capacity constraints, there are doubts about its full effectiveness in the medium and long term. Application of the Code should therefore be kept under con­stant review, with a specific time frame for publication of what this constant review is finding.

Obviously, the best solution remains the improvement of overall airport capacity. The Comite fears that with future growth in air travel, the situation at certain Community airports will deteriorate further. Slots will again become the crucial issue for achieving realliberalisation of the market.

I

r··:--;,·~--~-~·-. .. . . ~-··-. ·-. c·-:-··--·-·~·

I mtenm repor,t as soon as_possible:This .' ·

. report should say whether. the ,Co.de · .. r has accomplished its ma~h 'aim, that is! 1 · ·ensure unbiased airport access to ne:w ' entrants. The report should highlight

any failures and. determine how they·· can be addressed. Iri that case, solu- · · tions sho_uld be proposed as soon as possible to the CounCil of Ministers : and the E~ropean P~1rliainent .for .quick implementation. · · · ··. ·· · •

State aids

Background With the disappearance of traditional forms of regulatory protection for national airlines, the importance of state aids has increased. This development, in conjunction with the present financial strains in the airline indus­try, accounts for the wave of capital injec­tions and state aid cases submitted for approval to the European Commission. Capital injections and stale aids have se­verely contributed to overcapacity and uneconomic pricing.

Significantly, all the cases submitted during the last three years have involved carriers that are state-owned. This in itself is a ~otentially significant distortion of competi­tion between state-owned and privately­owned airlines.

Obviously, there is a problem in equitable access to public funds. Short of offering all airlines an equal discount on navigation charges levied by governments through Eurocontrol, which is entirely feasible, it would be difficult to make any system based on public funding truly nondiscriminatory. The market-distorting effects of discrimina­tory state aid are obvious. This is particu­larly true in a period of economic difficulty and overcapacity. State aid delays reduction of overcapacity. .

In a competitive market, access to finance means should be equitable. It should not be based on ownership. This principle applies both ways: a state which owns an airline should neither privilege the carrier against privately-owned companies nor disadvan­tage its carrier by failing to assume the responsibilities of a commercially-oriented shareholder. This principle of equal treatment, irrespec­tive of ownership, requires a very sophisti-

cated policy on the broader issue of financial relations between states and publicly-owned carriers. It requires a clear separation be­tween the normal commercial operations of a shareholder and state aids granted under Art. 92/93 of the EC Treaty.

One may argue that the most solid way to phase out privileged treatment of state­owned carriers would be to privatise all air carriers. The Comite, on the one hand, believes that objective economic require­ments of an increasingly global market implies strong pressure towards privatisa­tion and that governments should therefore work in that direction. This would facilitate restructuring considerably. However, the Comite understands that privatisation normally needs prior restructuring. The Comite believes that financial support to airlines, whether by governments or other authorities, should be banned if it violates the rules of the Treaty of Rome by exceeding normal commercial conditions.

For a brief transitional period, however, the Comitereluctantly recognises the need for some states to act on a genuine "one time, last time" opportunity to put airlines on a normal commercial footing. The reasons for granting exceptions are essentially political. The normal role of bankruptcies in the restructuring process is likely to encounter significant opposition. In particular, airline employees should not unduly suffer from the consequences of decades of mismanage­ment and political interference without some opportunity to correct matters in their interest.

The foregoing findings also relate to the need for restructuring ground handling services at Community airports. (1) These services have been organised in most Mem­ber States for a long time in the form of a monopoly or similarly restrictive arrange­ments. Accordingly, a basic need for restruc­turing exists and may require financial backing from public authorities. Therefore, the following recommendations also apply to this specific business.

f·. incompatible' 0it~' i{ormal commercial

1

,;· -t~:c;~;~~ean ~ommi~sion·. i~ ~r~~d· to

I I I I I l

l

. · ~ .strictly enforce Treaty pruv1s10ns · · : concerhing state aids ~nd to elaborate

clear guidelines for ~valuating any exceptional application of state aid.

- For a brief period, however, approval of state .aids may be considered when this aid serves the Community's interest in a restructuring that leads to competitiveness. In this context, support for the transition of an air carrier (or airport handling services) to commercial viability may be in the Community's interest if the position of competitors is safeguarded. The conditions of such approvals should include, though not necessarily be limited to, the following: a) a clear and genuine "one time, last

time" condition; b) the submission of a restructuring

plan leading to economic and commercial viability within a speci­fied time frame, proven by access to commercial capital markets. The plan must attract significant interest from the private sector and ulti-

.. mately lead to privatisation; i· c;) the validity of such a plan and its

chances of success being assessed by .. independent professionals hired by

I

·· the European Commission to take · ·.: p<lrt i~ th~ Com.inissii:m's assessment

, procedure: Results bfthis ass~ss- · . ,, ~ :. ment.spoulq be. m~qe public:~l1 ... · .... conjunctioi1w:ltha_11yeventual ._.

\ · ·· ·. Comr?.lis~icm d~eision; . · . l . a) the ~ndertaking on the part ofthe 1 ·government conc~rned to r7frain ·. t froin interfering, financially or .

I otherwise, in commercial decision

. making by the carriers concerned; I e) the prohibition of the airline using

I public money to buy or take over 1 another air carrier or to extend its ) own capacities beyond overall 1 market development. Instead, i reduction of capacity should be j . envisaged; .. i f) acceptable proof that the competitive I · interests of other airlines are not i negatively affected; I . g) careful monitoring, assisted by j . independant professional experts, of 1 the implementation of such restruc-l turing plan.

Mergers, alliances, forms of cooperation

Background The concept of the national carrier no longer fits into the regulatory pattern of the Third Package.

The global competitive environment calls for European airlines to reassess the scope of their operations.

Mergers and cooperation agreements may be a useful vehicle, among others, for promot­ing and accelerating the restructuring process and so paving the way to significant cost savings. In no case, however, should such proposed arrangements be allowed if they seek to create a dominant position.

Recommendations - Airlines should be. left free to dedde

on their ow.n optimum,sizeand operat-ing means. , ...

- Recognising the overaJl potential advantages of alliances and mergers for users and operi\tbrs, and the·.

( resulting demise of the:.nationaf:flag ..• ' carrier concept, the Eu:ropean Cc)mmis~ i. sion should, i.i,l principle.;lQC?Jsfavqur- . ' ably onsuch arrangements.; ... ·. . . ; j -Competition author~tie~, sl19yldpnly·· . object if it c(ln;dea~ly·pe shQ.'fA·~?at arf I aim ,of ~he !'lrr(;lnge_men~}s..~<i~cr~)l:Wa · .·• .. I.. d_ominant po'sftio~;t'-w_it~~il.::t~~·~~9.mm47

1

· .. ·.. rut)r-:o,r. witJl.in}a:sig~i,f~~~rftr~&i9;n,:~r,. , '··:: market.in the.;context o'f.a'merger;:pdf_ .

I··· :~~;;tl~e~t.i~~~~t~t~:! Europe. . : '. .. , . ~~, , , , . , . ,

- In this context, ¢ompetiti6ri a;Uthoritigs , : . . shal[take due account,olthe•:n~.ed.to :'. ::

. -promote giob~l ~offir)etifiv~ii~~~'§fthe'• .. ·j

[. ___ ~-~~I~~-n · ai~~:~ indu~trr~:; .':rL;' ._; __ ~_~_:_j

*Not supported by Mr Valladon. See "Dissenting opinion" on page 43

I

l

Removing infrastructure bottlenec Overall infrastructure

Background A lack of appropriate infrastructure for air transport - the capacity and efficiency of airports and air traffic control (ATC) sys­tems- is a major obstacle to a well-balanced development of Europe's air transport system.

User charges paid by air carriers in Europe are thus much higher than in other parts of the world. These charges amount to 13.5% of the airlines' total operating costs. As a result, a Europe-based air carrier suffers from a major disadvantage against global competi­tion. The anachronistic fragmentation of the European ATC-system is a serious problem indeed.

The Co mite deplores the lack of political willingness by the EU Council of Transport Ministers to tackle this ATC problem with the urgency needed. Several attempts by the European Commission to include air trans­port in the EC budget on transport infra­structure have been blocked since 1990, regardless of how urgent this matter is.

Recent technological and political develop­ments offer excellent opportunities to im­prove infrastructure significantly. New Treaty provisions on the creation of trans­European networks and the decisions of the recent European Council on an immediate European initiative for growth, competitive­ness and employment, allow for major steps forward in developing a truly European ATC system. So far, efforts to set up such a system have been at an impasse.

This political progress is paralleled by new opportunities created by technological progress. Satellite-based ATC systems offer an enormous potential for cost-savings. They should be implemented in the EU as soon as possible. This requires a genuinely European effort to be coordinated with other regions of the world.

Air Traffic Control

Background The present European Air Traffic Control system, run from 52 different centres, is woefully inadequate. According to some estimates, 60 to 70 additional aircraft are usually in the air at any given moment because of congestion. This has drastic effects on economics of airlines, inconven­ience to passengers and pollution of the air.

The principle of national sovereignty over airspace is, in conjunction with military needs, very often used as an excuse by states for not implementing urgently required ATC measures and, in particular, for failing to establish appropriate decision-making rules for various European institutions dealing with ATC matters.

The lack of coordination between military and civil air space management also creates problems. In this respect, a basic reassess­ment of today's military needs is required. Nevertheless, the Comite recognises that some progress has been made in this area.

The ECAC strategy for implementing the European Air Traffic Control Harmonisation Integration Programme (EATCHIP) repre­sents an essential step towards improving Europe's ATC system in a pragmatic way. Similarly, the APATSI programme seeks to

improve the flow of air traffic in the vicinity of airports. Community support for these action programmes must continue and be reinforced. However, major institutional reforms in Eurocontrol must be envisaged in order to allow that body to make decisions much more quickly.

On the other hand, the Comite is far from convinced that such pragmatic arrange­ments, largely based on short-term consid­erations, will constitute a sufficient medium and long-term framework for further im­proving the capacity and the quality of Europe's air traffic management system. Major institutional measures are needed for accelerating and deepening the process towards a genuine European Air Traffic Management System. This is particularly valid once EATCHIP approaches its so­called fourth phase. The Comite believes that there are no alternatives to a truly Single European Air Traffic Management System.

New satellite-based navigation technologies offer enormous potential for increased efficiency in ATC, but require that system providers ensure the necessary coordination at a global level in order. to avoid potential_ conflict of interests. The CNS/ ATM (for­merly FANS) concept provides an appropri­ate basis for this work.

:-:: ·-•.-::-·-·-,.-..···----:--·-. -. :-:·-;·,---~:c--- --:--:--:-··..,..--·" ~, 1· Recommendations· ... .. . · I h> Jne'JSLfrbp~~n·Up~on' should: . . . _ · r ·. :~· pu:t·an.~~n9-, iis q~ic!<W:as possible, t9 ·. . t ?·· .. ,· .. tJ: __ :e .~urrenf a,~a~h~?rt~stic. ~mgmepta- · !I

F ::•.-e.:?.?n•of~TQsy~J.e;nsm_Europe:,·· ·. ·. . r· .:~work towards completing the.mternal l; :: : ':.·ffiar~~t· by creat,ing 'a 'single air~p~ce

t·: ··, .{t~~~~j~$nlcei:~r~:~9~rdin~tion at .. l. " .. ,; agiobal f¢velgfnew s,aJellite~based i f:: ·• ~·ATC techn~logies ~pd. develop a.•: · (-,:::·;iong~t~i-in ;ATC.strategy:fpr; Europe; . I ~ ~~'' ~' ~:. -~~: :·~:.· ~:) <:.' '-~: )\ :_ '~- ·:, -~ . . ... :·~. ' ,:_·_. ~ . ,.·· ·. ··. . :; . •'

t: /to this ~~d the '£u··~houl<,i: . ~, \ :o .reirtfqr'ce;its ;sJppb,rrt()r EATC:HIP,.

f "'' t integ<~tid0··6bit'rr>ffk•corikcimn·; • • J ~;~.4~4l~;~~~£~t;~~~~~~

r~-- -··--· ~-----:·~---- ·:-~-----~ -;--. ~"""""."'-"""";, .... --~·-,-~-----~·7·~:.---::~--;:~·1

! · . European A~r Traffic_rvra,n~gep:u;n,t. ·:_ i I . Systetit as a separate lE;;g~-~- e~i:i~:Y: T.~il>,· '.! I · t't' h ld· · .. , ·· · · .. •.' ·'· ·· : · ·' en1y.s ou .... , ,<_.:::.·>···': _.., .. •.!

a) exist as a p4blic l.it~litY tJ:tat}.i'ses : < J . b~siness piindpl~s.for:c?xet:tDk _.,: · 7 1

costs; . . · · . · • . , , . . "' , :i b) ensur~ adequat{us,er pchti~ip'ati(Hl '/;

' . . ,. ' ,. '!

. . in monitoring· this Si~gle Syst~ni;·: . .. ! " ' c) hil.ve fina'nci<il autonb.Qly with' . . . ;

· power to eoll~cffee·§, ~a)se. fu~ds ·:: _:and ~rgani~e plan~il}~:and.piocu~~~. , i inent i11depen9.entJy of the, Rul;>lic .< .• ·I

. sector b. udg' et; . ' ·. ~- ' . ,• ..1 ·:.'! .·~ stre!lgtll€n the Eur6soh.trol·~~i,l§titu- ... ; . ! · tional framework With a·yiew" td .. · , · ... l . e~tablis~ing•assoort. as.pos_s~~ltF~ear~;· 1 cut dec~siori~II1aking,rule,s mc!u~mg;. : .· i majorityy,oting, W,hic~.~~n~;v;f?r<__. · ;. l proper management of_thiEi ()r~~msa; •: ·) tion ·. . · · · . · .<' · ~ ' . : • Ol

.- fully support early_ iJilplem~!lt~tion o(. \

. CNS/ ATM.technplogy ~.tld;>w?rk.~ ·. ·. j . tow<:trds an autoncwi.'olisa,g~,ricY: to'. . ·1

· . car,ry out theimplefueplation qf CNS/AJ:'M. . .

Airports

Capacity

Background Many major airports within the Community are reaching the limits of their capacity. A study entitled" A European Planning Strat­egy for Air Traffic to the Year 2010" carried out by the Stanford Research Institute (SRI) foresees considerable capacity problems for about half of all European airports, even when present measures to increase capacity are taken into account.

It is therefore essential to reorient political decision-making on airport capacities by developing an airport system in a European context, instead of leaving such issues entirely to local authorities. The European Commission's present work on guidelines for a Community airport network system is strongly welcomed as a step in the right direction.

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... ,. --··-- - »·· . - -·-·

- further develop of guidelines for a Community airport network system towards an European Airport Capacity· Enhancement Plan;

- make funds available for the ongoing analysis of air transport infrastructure problems, as well as for the drawing up and development of technical/ procedural improvement programmes; ·;

-tenaciously pursue of infrastructure · improvements based on European requirements (and not only defined by local or national interests);

- more actively inform the public of the positive economic, social and environ­mental benefits of air transport.

Legal constraints on airport construction

Background In some EU States, plans to extend airport capacities are confronted with legal barriers which can take decades to overcome, if they can be overcome at all.

In a number of Member States, public procedures for the planning, construction or extension of airports take place in several stages and are linked with sometimes excessive legal redress for possibly affected parties. Obtaining approval several times over and dealing with several appeals against the same matter results in unaccept­able delays and thus in the competitive distortion mentioned above. This further hinders the development of a truly pan­European air transport system.

IRecomrilendatioJ:l, . --.. _-.---.-1 J ~he,:Eur¢pean,Commiss;on $hould .,

exadtine. possibilities for harmonising the legal b<tsis and procedure~ within the EU territory. for the planning. artci construc­tion/ extension of airports and should prepare proposals for a fra):llework of guidelin~s:Jor application in all Member.. ·

·. States:::"''· · · · · · ·: · >: ·· '· · · ' ... '"'"

~-···----~··:···~~<··. -~~-~~_:__--~~~:.:~'---·-----~--~~: .

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Harmonising to reduce costs Harmonisation

Background The airline industry needs a strong Euro­pean internal market to ensure an efficient, modern air transport system. A priori, such a system calls for the disman­tling of remaining differences based on outdated national constraints and bounda­ries. Harmonisation, however, is not an end in itself. Its ultimate goal is to increase efficiency.

In a number of areas, action should be taken as soon as possible to promote further integration and, thus, increase the efficiency of the internal market. Therefore, such action must demonstrate cost-reducing effects.

In particular, in the current economic cli­mate, harmonisation measures are only helpful if they are demonstrably conducive to average lowering of airline costs or to substantial improvement of standards. When legislative initiatives at EU level cannot be justified on such grounds, they should be abandoned.

,- -------_-----~---

! General recommendations 1 - The Comite recommends that har~o- · I . . . . , ; " ; \ .. • . . . . .·.,.· ;,: ..

} · nisatipn measur~s be ~dopteq,. qhly ·' · r. when th~y irnprov~}6st~efficier{2y..iri. 0

t areas such as air traffiC control, taxa-! tion, enyironment,•aircraft certifiCcitio~ I · and lice~ce~. for cockpit crew. Tll,~ife;~. · · J Jor~;.'a;,c~_sf-bene'fif;i~"n~,l)f_siS :~hqPJ~:;~·)e;,?.l f . centrai pait of such proposals:· ', :: ('-:' .. I -Whenever_ these measures would' j increase the average <;:ostburden~f · f. · Eu,ropea~ ~ir carriers;.the:y shquld;~<?,! ;' . 1 · be implemented .. ·. "F·< · · _ -- ~ .. ·,;'·'/:('/ . . ::, L __ ._,. _____ ~.::~.: _ _:_i_;.,~ __ _:_ __ ._...J::..::~::>~:..-. ..:...~:.1~-:.·~.:.~:.:~::..J~--~~-·:.~.,;,.~~J

Aircraft certification

Background European countries have different criteria for aircraft certification.This results in unnecessary bureaucratic burdens and delays which are costly to airlines.

The Joint Aviation Authorities (JAA) are working at coordinating rules and specifica­tions but hold no delegated authority to make decisions. As things stand now, a

mutual recognition of all certificates issued by national civil aviation authorities remains a distant perspective.

Moreover, in addition to intra-European discrepancies and singularities, differences exist between US and European specifica­tions for US-manufactured aircraft. Again, this situation results in an extra financial burden serving no purpose at all.

-·--····-·••••"'"""'"""••••u•·

Recommendations ··••· ~1

-The ongoing standardisation efforts by the JAA should be encouraged and the JAA should be urged to speed up their work. The EUshouldpress Member. .States to promptly agree on the mutual recognition ·of certificates based on ·· JAA recommendations.

- Beyond this, the Comite strongly recommends establishing a Single

· ·European CeitificationAuthority, which would (a) end the duplication of decision-making bodies and (b) be in a better position to reach agreement on

..• mutual rec()gnition with the US.

Training programmes and competence standards

Background Even though they all meet ICAO standards, the national training programmes and competence standards for cockpit crew remain substantially different among Mem-

. ber States of the EU.

This is one reason for the difficulties encoun­tered by airlines in recruiting pilots licenced in other Member States. This situation denies employees the freedom to work anywhere in the Community and it denies airlines the flexibility they need. This is in clear contradiction to one of the most basic tenets of the Single European Market.

The situation of other staff involved in the safety of flight operations, like flight engi­neers, is similar. It is equally desirable, both to improve the efficiency of the internal market and for safety reasons, that staff in air traffic control be licenced under common standards.

r ~tti~:::e:t~~:t:~;:lwuid ;ec~~=~:-l pilot licences issued by other EU i

Member States. · · . :- To achieve this rriut:ual recognition, the

Community should establish ~binrnon training and competence levels for cockpit crew. This would bind Member States and Community air carriers to

. the sarp.e rules. . ' \· ':' .. . ·.. \ . . .. - The first step woUlS' be to harmonise

existing national training programmes and establish a single set of profes­sional standards. The harmonisation of- ·

.. prograqunes and::~tandai:ds shoul¢1. be extended to othefaii:line and air traffic · controlstaff involved in the safety of air operations.

--~~~--------~~--~

Aircraft maintenance

Background A high level of flight safety must be main­tained in Europe. The JAA have developed a set of minimum standards and conditions for aircraft mainte­nance which have been incorporated into Community law. Yet, the European Commis­sion does not have the authority to supervise the implementation of those standards.

Some airlines do their aircraft maintenance outside their home country, either in Europe or in other parts of the world.

f'-i;-~~mniend~ti~;~~---:-_ -------.-.-~---1

: -Airlines must be free to decide ~here J

to perfon11 aircraf! _ll}a,~nt~Il;~nc.~,, ·· :. ., l provided ,common~ -~~roriaiiti~at stand:,.·

I -~:: :;p~:::ra~~~f~:~~:~d2;J:,:: ::, I . :~~~~t~~~:~:~:~;l4t~~;:s.j~~i~~-:~~ , t; · · · Co~n:t uftit'y:'.~u, th9MtY;~'J:li~~\~\~W~Jrf~;}<:~\ ! · ensure' a· iui.iform·li~Y.~l·of~iffe~y;~t~nd+' · ·· i · ards throughout tl}~ ~Q. · · , ''\,·>;· .-' .. r . ·.· - . . , \ .,. ~ t-_ ___ _,___.___ ,'·;.3:'

Breaking financial straitiackets The financial landscape The economic analysis in Chapter II has shown that the financial status of major air carriers has deteriorated and that most major European air carriers have suffered heavy losses over the last years. Increasingly, cash-flow does not cover an adequate part of self-financed investment.

As a result of indebtedness, financial costs have sharply increased. A worsening debt/ equity ratio weakens the borrowing capacity of air carriers. Inappropriate taxation rules compound the financial problems.

Against this background, the European airline industry's ability to finance participa­tion in future growth is endangered. Euro­pean air carriers have placed orders for aircraft deliveries amounting to 22% of the Western manufacturers' backlog. Financing these purchases may mean that the total debt of the eight largest Community air carriers will reach 60% of all revenues expected for 1995.

At the same time the debt/ equity ratio may reach a totally unsatisfactory level of 80/20 unless a return to significantly improved profitability is achieved.

One may argue that a significant slow-down of delivery cycles will have to be part of the solution for this financial impasse. Present world-wide overcapacity ~symbolised by more than a 1,000 grounded jet aircraft (9% of total Western built fleet) - appears to support this argument, at first sight.

However, it is expected that only 300 of these aircraft will ever be put back into service. The rest will become obsolete as a result of more recent and strict noise rules affecting aircraft of this age.

In addition, airlines have already reacted to overcapacity by cancelling orders and postponing deliveries. Since 1991, the annual worldwide production of jetliners has been declining.

However, traffic growth has now recovered to an average level of 6% a year. It is widely expected that this growth rate will be sus­tained in the short and medium term.

At the same time the average airline load factor (the percentage of available seats occupied by revenue passengers) has started to improve again. Overcapacity is expected to be gradually absorbed, allowing the rate of aircraft annual deliveries to increase once more from 1995/96 onward.

In the long run (until the year 2000), the demand for new jet aircraft, for the renewal and modernisation of fleets, will represent an expenditure worldwide of about $30 billion a year, of which approximately $8 billion will have to be spent in Europe.

The traditional methods of financing these aircraft purchases have lost part of their effectiveness due to:

- inadequate cashflow; - insufficient profitability hampering access

to capital markets; - poor balance sheets that hurt borrowing

capacity; - reduced resale value of aircraft and the

increasing risks of lessors; - limited ability by manufacturers to under­

write customer financing; - uncertainties about future airline market

structure.

In addition to these generally valid financial constraints, European carriers suffer from specific impediments:

- access to capital markets more limited than for US airlines;

- limited access to credit insurance systems; - financing structures less tax efficient than

in the United States (e.g. leverage leases); - purchase of new aircraft more expensive

than for US airlines (5% on average, due to size of orders);

- aircraft financing denominated in US dollars, putting some European airlines at a considerable exchange rate risk;

Removing the deadlock for most major airlines' funding of future investments will require:

- a rapid return to profitability; - a strengthening of balance sheets; - improved access to financial markets.

Taxes and government imposed charges

Background Taxation in various forms decisively deter­mines any industry's ability to finance investments. Above average corporate . taxation in conjunction with effective (na­tional) control requirements puts a major disadvantage on the European airline industry because it seriously hampers self­financed investments.

Taxation policies in Europe imply, because of existing fragmentation among EU Member States in the area of corporate taxes and certain side-effects of the creation of the Single Market, additional constraints. It is possible that value-added tax (VAT) will be imposed on air travel when the present interim regime ends in 1997. An anachronis­tic fragmentation in the area of corporate taxation makes it difficult for air carriers to use innovative forms of financing invest­ments on a genuine European-wide basis.

Environmental issues may lead to the introduction of a so-called carbon tax. Its basic underlying idea, i.e. to promote· the use of alternative forms of energy, is not valid in relation to air transport where no alterna­tives to the use of kerosene is, as a commer­cially viable option, in sight.

More generally, high indirect taxation reduces the demand for air travel and puts additional pressure on yields.

European air carriers have to compete head­on with companies from other parts of the world. Tax treatment that is comparable to that of world competitors is important for the long-term viability of a European-based industry and for promotion of growth and employment. New taxes and charges levied directly on air travellers and cargo, add to the overall price of travel and, if unchecked, could impede growth in the longer term. r·" ---·~ -----~-----~-_.,- ~-- -~·-::-~------------·- -~ -- ---·· ------ -·- --· ~ 1 ! · Recommet;tdations · '

-:European taxes. arid charges speeifi-.. callyaffecting air transport should be

'harmonisedconsistently at the lowest I , 'possible level. ·

li ·~·The so:~all~d carbon tax shou~d be ·

.rejected an<,i VA'f on. air transport. I .. should be.set.at zero-levelfor· Euro~ I' .·· . . .. . . . .. .. . ~ ;· ., . ,. . ~--.__.:....- -- ---- --~----- ·-· ~ ·--~---- __ ,_: __ ~__:;,__ .. ~ ---~-- _____ _. _____ ---- -~---- ~ .

pean internal traffic, . . .. -Any additional taxation with a.,particu­

lar impact on European air transport, air travellers and cargo shoul<;i be avoided. · · ·'

- The EU should speed up w9rk to-wards a genuine ho;trmo'nised system of corporate taxation.

- As a signifiduit step towards. tax harmonisation for the:airline industry; the European Commission. should . examine, as a matter of urgencY,· possibilities to improve access to'tax. lease arrangement's for the purchase of aircraft by European air carriers through:· ·· ·· ··

a) facilitation of access to fiscal posi~ tions. .

b) inclusion of early deprec~atio~· schemes for investment in. new equipment.

-To facilitate capacity adjustment and removal of overcapacity, Me.!llber States should, through a proposal to be developed by the Europeari.C.oinmis~ sion, agree to establish, for a limited period of time (4 years), a preferential tax treatment for capital gains from aircraft sales. · ·

-VAT on air navigation charges should be harmonised through the EU. When applied, it should be made deductible.

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Aircraft procurement

Background There are currently only three Western manufacturers of aircraft with over 130 seats and worldwide only one for aircraft with over 400 seats. When buying new aircraft, Community air carriers must be able to benefit from competition between manufac­turers. They should receive treatment equal to their competitors'.

Considering the economic and strategic importance of air transport, it is important that the EU work towards:

- allowing Community air carriers to obtain the best purchase terms from competing manufacturers by fostering competition among aircraft and engine manufacturers and financial institutions;

-ensure access at any time to at least one European source of supply.

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Aircraft purchases are currently paid in US dollars. Because airlines earn revenues in various currencies, they are e~posed to exchange risks, and even more so if they have no or few revenues in US dollars.

~ I ~~~::e:ns~:!~~:~d the mJstwtild:. ··" '~ ' .. I ~~ ensure the co~petiti\reri~ssof th~: ·· · .: · ·

European aeronautical industry by

I providing the same level of. support .. available to the US aeronauti~al iiJ.dus-c

I

I try. This will eilable European airlines·.:~ ·.·· to benefit from truecompetition and from the availability of at least one Europ~an source of supply. . · · .. ·

-Member states arid the Et:f'sh(iuld ·., ··. pursue monetary integration within the EU and seek agreement on an . ·. . international nionetary sy~h:~rh elimi~ nafirig' distortio~~· and providing ; stability.

- In anticipation: of this, Cmhmunity airlines shpuld;~e eqtitled~to e1~'quire .. · .

~:f:!:~~~~u.nf;•~:~rcraft:·m::~li!~re,ail,",.·;~··~,:·l

Access to financial markets

Background Even if normal profitability of the European airline industry is restored, problems may remain for funding investments. In the first instance, the industry needs access to new equity.

Beyond current shareholders, such equity increases might be obtained by access to normal equity markets or by alliances with financial institutions or other industrial companies, in particular with other air carriers. In the case of European partner­ships, it may be necessary to overcome restrictions resulting from the requirement for national ownership and control as included in most bilateral agreements between individual Member States and third countries. In the case of a partnership from outside the EU, access is limited by the requirement of majority Community owner­ship for carriers with EU status.

To pave the way towards commercially meaningful and legally feasible alliances and better access to foreign equity markets, it should be envisaged to limit ownership and control requirements strictly to what is really

necessary for compliance with EU, WEU and NATO strategic economic policies.

Even if the availability of traditional modes of financing were to improve, a "funding gap" may remain, at present estimated at 35% of overall financial needs. Therefore it is appropriate to take action aimed at easing access to current and new sources of fund­ing.

Recoml1lepd<ttions . . .. . .. · . . : .... -' The EU arid major trading partners

should, on a reciprocal basis, work . towan:,is easing restrictions resulting .:;;from effeetiye ow:'.lers.hip contro~ . · · requirements iri bil'ilteral agreerherits. - the EU should take appropriate action

to maintainthe access of Europe(:ln . : :Airlin~s:to''~redit insurance regiroes · • ;:;~nd. to 'r~~th· agieen1gn:£ 'to 'impf<)ve .. / these in accordance with the current ·.conditions of the mdrket.

. ; ~ The Eurqpean Cqrrnnission; sh~pld

·.·':·::t:;~~:J::tfi~r-f!~1~!:t~ric~;i!~7~~~; ·,·.:., . :instan<:e, p~rision fw.l.ds, bond , , I

· ···J~ecuritis(ltions) in order to ~Xpcn'td the ·l ~;·:;.::.;§~ .. ~.~.-~?~r··~.'f··· i~.·n.· ilriciaL;op ... t··.~o~~·~v1l .. !·l.,_~ble:. •. 1 l..~~oa1rh~e ::2~nage1llent. · · ,~ .. > . ~

Competing in a global market Background Markets outside the EU are of enormous economic importance to Community air carriers. For the majority of them, operations to non-European countries account for more than half of their activity and in some cases more than 70%. This can be contrasted with the major US airlines where international services account for less than 30% of total operations.

The approval in 1983 of the Council Direc­tive on Interregional Air Services and subse­quently in 1987, 1990 and 1992 of the three air transport policy packages, gradually transformed the Community's "interna­tional" bilateral system into a "domestic" system based on multilateral principles.

This development of the Single European Aviation Market is fully compatible with the Chicago Convention which governs the broad principles of international aviation.

Commercial aviation relations between Member States of the European Union and third countries remain, however, governed with few exceptions by bilateral agreements. There are currently an average of some 60-70 bilateral air services agreements between each EU Member State and third countries. These agreements are affected by consider­able government influence, frequent renego­tiation, and, in most cases, are based on a protectionist approach to economic issues. Member States' bilateral agreements with non-EU states differ considerably in the nature of the competitive regime they create.

As a result, such bilateral agreements with non-EU countries have a substantial com­petitive impact on traffic to and from neigh­bouring countries, and in the case of major markets, on Europe as a whole. The creation of the internal market has strengthened this spill-over effect. By and large, the bilateral agreements ignore the new realities of the Single European Aviation Market. Their existence raises questions of conflict with key provisions of the new regulatory environment of the Community, particularly with regard to national control requirements.

These provisions hinder the designation of Community air carriers for the operation of air services from points in Member States other than the state of registration to non-EU states.

Furthermore, many bilateral agreements with non-European states, particularly those with more mature economies, are under great strain. Some are becoming rigid because of overly detailed operating condi­tions, while others are simply becoming unmanageable as markets globalise and interrelate. Again, these effects are rein­forced by the establishment of the EU's internal aviation market.

For countries with less mature economies, however, the bilateral system appears to still work effectively, although developing countries have expressed concerns that their existing traffic rights should not be devalued as a result of an EU approach on external aviation policy.

Community air carriers are now legally entitled to establish themselves anywhere within the EU territory.

They should have the possibility to be designated to fly to any point in the world, provided the bilateral parties involved agree. In the first year of the Single Euro­pean Aviation Market, they made few attempts to use their new freedoms within the Community. Not one scheduled air carrier seems to have asked to serve a non­EU destination from a Member State other than~its home country. A common policy toward third countries as to carrier designa­tion would prevent distortions and open up effective opportunities for Community air carriers.

To the extent that there are inconsistencies between the Community legislation and the bilateral agreements of the EU Member States, the Rome Treaty (Art. 234) makes it mandatory for states to eliminate such inconsistencies. This may affect existing bilateral relations and new agreements. Since EU Member States have not imple­mented this provision so far, there is consid­erable risk that such agreements could be nullified by the European Court of Justice.

The need for a common external policy Apart from legal reasons, the compelling economic reason to establish a common external aviation policy now is to comple­ment the internal market with rules to ensure a level playing field. There is consid­erable pressure from the European Commis­sion and the European Parliament to adopt such an external policy, but Member States­for a variety of reasons - have so far been reluctant to move forward on this issue.

Without a common external policy, bilateral agreements will continue to create imbal­ances between Member States, lead to discrimination and weaken the Community as a whole, thus reducing the potential for increased airline efficiency made possible by the Third Package.

To maximise their effectiveness and effi­ciency, airlines must be able to serve any destination in the world from any point in the Community- providing of course that the non-EU state involved agrees to it.

Airlines need to expand their markets sensibly and flexibly to improve their long­te'rm commercial viability and their global competitiveness. However, in many coun­tries with mature economies the prospects for growth by bilateral exchanges are lim­ited. Community-wide agreements offer better possibilities for setting up the most effective airline network. And because access to the EU market is important for many third country air carriers, a new generation of Community-wide agreements will offer Community air carriers new business opportunities.

This is in particular the case in relation to the United States today. It will become increas­ingly true with the major growth markets in Asia. A common external aviation policy is required to bring into play Europe as a whole.

A common external·policy, developed and structured on a step by step basis in a similar way that the internal market policy was developed, will:

-benefit Europe's airlines, provided that imbalances in scale and scope of operation are taken into consideration, and provided also that true reciprocity and equal oppor­tunity are achieved;

-increase competitive service, product and· price options for travellers;

-deliver significant economic benefits of increased travel and tourism to national economies.

A common external policy will allow Europe's airlines:

- to serve the world markets from any point of their internal European systems;

- to exploit network efficiencies and become more effective global competitors;

-to benefit from a consistent nondiscrimina­tory regulatory framework for short and long-term decision making.

The common external policy will also allow a more consistent and transparent approach to dealing with non-European states and airlines. On the one hand it will dispel concerns about discriminatory treatment, and on the other hand it will give a basis for increased reciprocal market access across Europe as a whole.

The development of such a policy can be undertaken in full compatibility with the Chicago Convention (bearing in mind ongoing examinations within the Interna­tional Civil Aviation Organization) and can be generally consistent with bilateral agree­ments. Specific adaptation of these agree­ments to reflect the legal and aeropolitical realities of the Single European Aviation Market may, however, require renegotiation of certain aspects of these agreements.

The question is, therefore, not whether there should be a common external policy, but what its component elements should be, where and when it should be applied, and how, in particular, to handle the transition from national policies effectively, equitably, without competitive distortion and major market disruptions.

Recognising that it is not feasible to switch immediately from Member States' bilateral agreements to fully fledged Community

agreements, the Comite recommends that the Council of Ministers first agree on principles of how to establish, step by step, the Community external policy.

A binding framework should provide for rules applying to any future negotiation. In the Comite's opinion, such regulations should ensure that: - all bilateral agreements are transparent; - all existing bilateral traffic rights (sched

uled and non-scheduled services) are preserved;

- any new agreement is compatible with Community legislation;

- an agreed basis for interim Community dialogue with non-EU countries be set out pending development of a formal external policy.

In establishing such binding framework regulations, the key question should not be who exercises control, but how can the most effective policy be put in place with the minimum bureaucracy and distortion of competition. In this context, the principle of subsidiarity, where necessary, will be helpful when allocating, within a Community framework, negotiating tasks between Member States and the Community.

Considering that bilateral agreements must be made compatible with the Single Euro­pean Aviation Market, the replacement of nationality clauses by a Community clause is an overriding priority for any negotiation.

Policy priorities in relation to specific regions There are a number of areas where action is to be contemplated - in some cases under a "bilateral" approach and in others using the "multilaterally" oriented Single European Aviation Market as a model to further develop the Community policy on external aviation relations.

United States This market is the largest in the world and is the most interrelated with Europe. It is ready to enter into negotiations with the Community - as recommended by the US National Commission to Ensure a Strong Competitive Airline Industry and repeatedly stated by the US Secretary of Transport.

The dialogue could initially explore the air cargo market, which is virtually deregulated

and could provide valuable experience for negotiations of passenger services. Other issues ripe for discussion are the establish­ment of common rules for CRS, the applica­tion of competition rules, and other doing business conditions. ·

A step by step approach would facilitate the progressive competitive restructuring of European carriers, leading to benefits for consumers and economies on both sides of the Atlantic.

Asia/Pacific As the fastest growing market in the world with important trade and tourism flows to and from Europe, this market offers signifi­cant opportunity for traffic development, although market access is highly regulated in several countries in the region, the dy­namics of the market place suggest an increasing pressure for liberalisation.

A number of Asian/Pacific countries have expressed specific interest in the develop­ment of the Community's common external policy and have voiced strong concerns that the European aviation market should remain open. This gives an opportunity for Europe to take the initiative in establishing on a reciprocal basis genuine open market re­gimes where applicable. The EU should now capitalise on this opportunity.

Eastern and Central Europe The increasingly close economic, political and social relations between the EU and neighbouring countries of Europe are lead­ing towards a common European ground of interest. The coming into force of the Euro­pean Economic Area will extend to EFTA countries (except Switzerland) the Commu­nity's internal aviation policy. With funda­mental political changes in Central and Eastern European countries, travel offers new opportunities for cross-cultural and business exchanges and improved prospects for rapid economic and political integration in the European sphere.

Recently concluded association agreements foresee the integration of these countries into the Community's aviation policy. First steps towards enlarging the application scope of Community principles should be taken soon. In the long term, the possibility to create a larger European aviation area should be contemplated.

Developing countries The modernisation of the air transport industry in the developing countries, par­ticularly the Africa/Caribbean/Pacific or so­called "ACP" countries, is a condition for their social and economic development. The cooperation between the EU and these nations should be improved for the mutual benefit of both parties. The existing traffic rights of developing countries' airlines in the EU should not be questioned.

With time, the progressive nature of the EU's external aviation policy should help encour­age these states to integrate their airline industry into a more open world system. EU policy should also help them to expand travel and tourism services, to the benefit of their own economies. In the meantime, Europe should provide the necessary assist­ance for further development of safe and reliable air transport systems in these coun­tries. The EU should abstain from putting additional burdens on them.

ENSURING THE RIGHT BALANCE Airports and air carriers as partners Background Paving the way for cost savings is not only an issue of improving quantity and quality of air transport infrastructure. Additionally, it is necessary to look at rules for using this infrastructure and to ensure that such rules work as incentives for improvements to the efficiency of the air transport system. This is particularly valid in the air carrier-airport relationship.

Airports have an ambivalent role in the air transport system. They are, on the one hand, part of the overall public infrastructure providing services to aviation and ensuring the best possible links for their catchment area. As infrastructure providers they must provide facilities and services impartially to all carriers.

On the other hand, airports are forced to finance maintenance, improvements and extensions of such facilities. In addition, the overlapping of catchment areas in Europe increases competition between airports. This creates a strong incentive for individual airport managements to adopt normal entrepreneurial behaviour. Many airports are, therefore, organised as independent enterprises.

This role is further complicated by the fact that essential airport services (use of run­ways and apron areas) represent a natural monopoly, in particular if point-to-point traffic dominates the traffic volume. In an individual airline's perspective, priori­ties are somewhat clearer: because air carriers must operate in a competitive environment they have a strong interest in rules that ensure effective incentives for improving efficiency and which provide a strong disincentive against monopoly practices and pricing.

At the same time, however, air carriers have a solid self-interest in not undermining the effectiveness of airport operations and the financial stability of airports and, in particu­lar, airports' ability to mobilise the funds needed for developing airport infrastructure and for restructuring handling services towards more efficiency.

t~:_i:{,~~:9.;'~;~ij;iici~~ .......... ''· .; . - .i

j:;:·~'The:.<;:omite.re9~1nme~ds: that, inth~ ·· V. ·•. ·ihterest:ofair trqnsport:users and the. f ... :i!ldti~t'ry( ground:ha~diing_services at ! .. E,ur9fiei!,ifairp9fts,fi.mst be fullY,'' <: !- ,: liberali.s~d,as sooh·~!'>. possible,_·, · ... · . . I '.'.,Airports:Iltay,seekexdusion of liinita.: 1 > tion of compebticm 1n ground hand~ihg' I.:.; services .oniy.if they can.demonstrate ·. ·: .• l: -· '. . .. - '\ ' " . . . f :' t~at optimal.use of the~r capacity· !':'- :~?uld be ha~pe:ed. T~is must be i ::·.proven by obJectivefactors such as ,, ·· ~Cl_ximuin ~urn~around and c~miecting I.. hm~s to be safeguarded, physical or . I. . operatin.g constraints, secun.ty, etc, In ..• ! f. . that case costs .must. be transparent.

·The- formal- prbcedundor. this proof .. rnu~t be estab~is.l~ed by ·~he EU._.'

~ Rules and Regulations applying to

1.::

. qirport constnictiqh and airport' . opepiUon.must seekto.ensure unbi-..

· ased provision· of services to present •. and potential users and allqw airport ·.

r . manag~iri.ents to.operate effectively to . i

I· maintain-and extend airport facilities . - ; j ' in.. iine with,'air'transport·market needs. ' ; i:~,.O . .'......_~~- ·~.:...._~:..~,--;~~~_j••--•""''~-~-----~-~· ~ .. :... ,,....:..,.._._, _ _.._.....,:._ • •-1 • ••I- ••-~•••• I

Dissenting opinion of Messrs Scholch/Valladon

- The European Commission should recog­nise airports as public institutions providing infrastructure to aviation, as well as inde­pendent enterprises within the aviation sector, being in competition among them­selves, with all rights to an independent business policy.

-The Commission may urge European airports to liberalise ground handling services at Community airports only if local conditions allow this without severe negative effects on their functions as an infrastructural institution, or on their ability to invest according to the needs of further development of aviation and airports' competitiveness. Under all circumstances airports must remain in a position to ensure safety and security of their operations by licencing all service providers.

- Airports being classified as coordinated airports according to the Council Regulation 95/93 on common rules for the allocation of slots at Community airports should be in principle entitled to limit or exclude compe­tition in ground handling services, provided that such limitation or exclusion of competi­tion contributes to their ability to provide sufficient airport capacity.

-The European Commission may adopt legislation to ensure that pricing of airports is made transparent and that quality of airport services is guaranteed, where compe­tition in ground handling services cannot fully or in part be admitted by the airports.

- The EU should clarify in its legislation that airports that open ground handling services to competition can charge sufficient fees for use of their infrastructure through self handling, third party handling or handling by agents as well as an adequate concession fee for the exploitation of the market created by the airports.

-The EU should ensure that eventual opening up of ground handling services to competition does not severely jeopardise employment and working conditions of personnel employed in this field. In particu­lar the working conditions of all providers of ground handling services must be harmo­nised to prevent distortion of competition, unjust exploitation of the working force and social disruption caused by this.

Caring for the environment Background All transport industries by their nature have environmental consequences. The European air transport industry is no exception, but it has already invested and continues to invest heavily in managing its environment respon­sibly. Indeed, managing the environment is a key issue for the quality of human life, and economic activities such as air transport must increasingly prove compatible with desirable environmental standards and public sensitivity to environmental issues.

The European air transport industry has made considerable progress in reducing the environmental impact of its multi-faceted activities. This progress is clearly demon­strated in the adoption of stricter noise standards for aircraft, airport management strategies that reduce this problem, and the construction or improvement of airport complexes which are designed to superior levels of energy conservation, noise abate­ment and site improvement.

Moreover, these achievements are of particu­lar merit when compared with other major regions, for example the United States. The higher percentage of Chapter 3 certified aircraft in European airline fleets (69% against 61% in the US) also indicates, among other factors, the willingness of European carriers to shoulder the costs of improving the environment despite the competitive implications of such efforts in an increas­ingly global market. Also, independent ratings show that a number of European airport complexes are amongst the best in the world.

Efforts in environmental management will have to continue. Improving the environ­mental impact of the industry is, like pro­ductivity improvements, a permanent task for policy makers and for management. However, future action must take into account the overall competitive situation of the European airline industry; and the fact that, being a global industry, a number of European airports will continue to have to accept, even with constraints, aircraft from other countries, particularly the Third World, which do not and will not meet the highest environmental standards. Any envisaged, or future, European legislation

should therefore be predicated only on a solid analysis of cost effectiveness. Such legislation must provide that the measures envisaged do not unilaterally penalise the European air transport industry, either in terms of cost or in terms of how infrastruc­ture is used.

Reducing emissions caused by congestion on the ground and in the air is the most obvious area for reconciling the need for environ­mental protection while taking into account economic concerns. Some 60-70 aircraft are always in the air at any given moment because of congestion problems. Improving European air traffic control and enhancing the capacity of European airports to accom­modate "Category 3" aircraft (which can safely land under most weather conditions) will have a major impact on reducing con­gestion-induced emissions on the ground and in the air. Some of these constraints, technically speaking, can be removed at little cost. Military airspace management in areas around civil airports, for example, creates excess fuel consumption and emissions. This could be brought to an end immediately.

Noise Aircraft noise remains a problem for many people living near airports, even though noise levels have been substantially reduced through technological advances which more than compensated the increase in air traffic. These improvements do also flow through to Third World fleets, although after some delays.

After years of substantial improvement, it is expected that further incremental reductions in noise will become more costly. This means that the cost/benefit of further noise reduc­tion may present a more serious challenge to manufacturers and airlines.

Consequently, future progress in decreasing the impact of aircraft noise on populations must, in view of further growth, depend more on improved land use planning around airports than in affordable techno­logical breakthroughs. When compared to land or maritime transport, air transport is certainly causing no more damage to envi­ronment, taking into account the number of passengers or freight tonnes carried.

Considerable reductions in noise levels have been achieved by the industry since the introduction of the modern airliner, culmi­nating in the introduction in 1990 of a tough global noise standard- by the ICAO. This so­called Chapter 3 of Annex 16 of the Chicago Convention will result in the progressive removal of the noisiest aircraft from Euro­pean fleets starting in 1995.

The European Commission is preparing a proposal which would mandate a further reduction in noise levels. The introduction of separate, more stringent European noise standards would result in increased costs to European airlines and put them at a unilat­eral economic disadvantage against their global competitors. Moreover, the benefits, because of the noise and emission inequali­ties of the world's airline fleets, would be only marginal at Europe's busiest airports which must continue to accept aircraft from all over the world.

Emissions Concern about aircraft engine emissions centers on two specific gases: carbon dioxide (C02), which is directly derived from fuel, and nitrogen oxides (NOx) which are formed from nitrogen in the air passing through the combustion section of the engine.

Commercial air transport accounts for 1.3% of global carbon dioxide emissions. Nitrogen oxides emissions are more difficult to esti­mate. Current scientific opinion is that they may make a contribution of 0.2% to global warming*.

The best way to reduce carbon dioxide emissions is to decrease fuel consumption. As far as NOx is concerned, ICAO recom­mended in 1993 a 20% reduction in engine NOx emissions from standards first estab­lished in 1981. A proposal prepared by the European Commission would ask for a further 20% reduction.

The economically most efficient way to reduce energy consumption as well as hazardous emissions is to optimise aircraft utilisation in the air and on the ground. The airlines' efforts in that direction are all too often thwarted by shortages or deficiencies in the air transport system's infrastructure, as now demonstrated by obsolete rules on

* Source : Energy Research Centre of the Netherlands

the use of military airspace, and the conse­quences of delays in the air and on the ground caused by air traffic control and inadequate airport infrastructure.

Airports European airport construction and improve­ments have taken significant steps in envi­ronmental management in recent years. This has been due to the concern of all the parties involved, to improve, through better man­agement, the environmental impact of airport complexes. Substantially increased consultation now occurs between airlines and airport designers, so as to improve the efficiency of airport complexes. Energy loads are monitored and reduced, wherever possible, noise abatement within terminals has improved noticeably, and many airports now have specific site management pro­grammes. Within the European context, a significant factor of change for the future of airport design and management will be the disappearance of internal European frontier controls.

A rapid resolution of this issue by all EU countries will significantly simplify the management of internal spaces in European airports and in the design of new ones, and should be encouraged.

. Recotrimendations ~:~": .. '>: ,;·~.i:'t !"?. :. · ·' · · - Eli~imating aircra~~ corige~.ti~~ .. in th~ ·

air and on the grol1p.d is by 'far. the .· ·. most efficient way t<? reduce:tli~~ . . . impact of air ~ransport 9n 'trl:!·en\rl.rQn.: ment. It can and must.be·a.chi!=yed as a matter of absolute priority.' The ·unitice~- . · tion·and modernisati6ri of Eurqpean. · .. air traffic control, ~11d impr<;>\(~).llent of ; European airport capaCity to niake · · · aircraft movement independent. of .' weather patterns, are twcl:~ss~ntial ' steps. They W,ill ha~·e a inaJ~r :environ- : mental benefit in additiori,:_to,improv.,-·; ing substantially the.econorn:ic~ of · · Europe' !l air transp~H:t industry.': · , .. ' ·

- On the ground, the E t,iropean l;!nion · , ..• · · should act to ·remove technical &nd :· · :. ·.

bureaucn1tic obstacles to' gptit}i~l;' . ' ' . •' aircraft utilisation cmd <:~irpo;tt 6pt::r~~ : ·:. tions St1Ch as artifi~ially restj:i~ttxi . :. :; ... airport and airspace. 'c:apa.dity; ·:~hd froritler cQ~trolS . . · .. :.:~..; ;: : ··~~· ··~ .. ~~: ~:~::::)·~~ }· .. ·: . -··

- The:Europe,a~ Oniqh shotild::a~tively·; . piuticipate i!l'the formul~tion.:qf':· :; .... · i~pr~ved int.ernatl.onal st~ri.4~r,i:fs:arid/ ::.. ....... ~-~-:~_ .. __ .....:._._· ~-~::...::~-::.L..~!~.~ "

I i

~

· :e~t~~s~~:"'~~~;~~~~~~;,:r· - The:need-to re~erv~:i-arge parts: 9{-th~?:-,: . European.airspace.for milita!y:~~e .}':::·: should be scrutinised with a view.to''. : . f~eeing as much airspace as pcissibi~· · for commerdal:'aviation.' ' '": <

-.Where congestion has become eri~ . · · .demic, the construction' of.new riln~: · >vays.sho~ldb~ consider~d;;Th~_ b,~n· /' on new run:Wi:rys on: envirqrirf\entaF , .. : grounds may. actually b.e. co'unterpro; .·• .": du:ctl.ve .. · · ., · .. ·:··. ·=.·::',.·.,.·:.;:-c·" ,.

' ' .:• The coil~tru~tioil ot';~sid~ntiald~vei~~: ::: '

,;~-~~~~~~l~{i~!I~~~~I.i~ t: :::;·:.of•airports &nd·: reduce:wast~'ot,;.eri.e'fg)r.i~.:=;: F'; :·.ililf6~gfiliin~~~:~ed::~i't':'orf';~it~\rii~R~g~f:.:j' L:(~f~:~~~~:[::.t±:2:f:~;,;·;·. .. .~;.~:r:'::~~~;;f:P" r: fiiJl

Facilitating employees' adaptation Background It is clear from the fact-finding part of this report that the European airline industry could and should be much more productive than it is. The thrust of this report is to show ways to tackle - on all fronts - this productiv­ity gap. This may initially mean redundan­cies.

The main emphasis of this report is on taking away various obstacles to seizing new business opportunities. Because air transport will continue to be a growth industry, the priority must be to create conditions that allow European airlines to participate in this growth in a profitable way. This is the only sustainable way to maintain and to create employment in Europe and to avoid a large­scale loss of jobs to other regions of the world. The growth of air travel-related business will help to increase overall em­ployment.

In addition, cost reductions in areas beyond direct airline management control will avoid a situation where labour alone pays the price for the required efficiency improvements.

The EU's Single Internal Market must be made fully effective. This is in line with the priorities outlined in the European Commis­sion's recent "White Paper on Growth, Competitiveness and Employment". In this context, the emphasis of this "White Paper" on the creation of Trans European Networks also fully fits with the recommen­dations on air transport infrastructure contained in this report.

Supportive social policy measures may be required for increasing labour flexibility. For example, more flexible laws and company rules on part-time work, weekend work, night work etc. would, given the operating patterns of the airline industry, help to · maintain and to create jobs. Additionally, measures to increase mobility and support retraining will help to overcome remaining problems in some Member States.

Dissenting opinion of Mr Valladon Until recently, air transport has been an industry bound by government decisions. This has not prevented the industry from experiencing considerable economic, industrial, and techno­logical development, quite the contrary.

The industry has always been able to adapt to the increasing demand of its different users' needs. In the past several years, the industry has been confronted with recession which has put into question its entire organisation, at the risk of throwing the baby out with the bath water.

At a time when through the GATT negotiations, one can hope that rules organising international markets will be put into place, it would be paradoxical that air transport follow the opposite path by orienting itself towards total free trade only based on fare wars.

Should the European Union submit to this trend or oppose it? In other words, must Europe simply become, on a global level, a purely free-trade region, no matter what the price for employees?

This general political problem is particularly acute for international air transport, an industry which by its very nature can relocate, and even more so for its employees.

Even if the different measures recommended by the Comite are quickly implemented and have their full impact, thus giving European airlines the means to achieve a level. of competitiveness comparable to US companies, who can be sure that suicidal fare wars will stop?

Once this "gap" with US airlines is closed, will there be another "gap" with Asian airlines to be closed too; when the network structures of both are fundamentally different from European airlines?

If this should be the case, the spiral of competi­tiveness at all costs can only result in putting into question income levels, working conditions and social security for employees, and, ulti­mately, in a massive destruction of jobs in Europe.

The example of maritime transport shows that this path is a dead end.

-It is not by destroying current jobs, that new jobs will be created.

- It is not through the disappearance of national flag carriers in favour of new entrants.

-It is by organising the European internal market to allow competition which would respect current standards of living and social benefits.

-It is by organising the defense of European interests on the global/eve/ that air transport can come out of its present crisis.

( I

I I

I

linking modes of transport Background Air transport is just one part of the overall transport system. The relationship between modes of transport (air, road and rail) is, overwhelmingly, a complementary one. Each mode has its comparative advantages and disadvantages depending on the require­ments of the market.

As a general rule, it is not up to public authorities to predetermine the use of modes. Such use depends on the priorities and needs of individual users in terms of distance, speed, flexibility, etc. to determine which mode is most advantageous.

Free choice for transport users requires that the same cost imputation principles apply to all modes of transport. This precondition clearly does not exist in the rail transport/ air transport interface. The result is a certain amount of discrimination against air trans­port services.

However, the Comite notes a privileged treatment of railways based on concerns for road congestion.

There is both complementarity and competi­tion between air transport and rail transport. To some extent, a competitive relationship between High Speed Train (HST) systems and air transport exists.

On the other hand, there is an enormous potential for improving complementarity between HST-systems and air transport. The issue is to make full use of this potential instead of maintaining artificial barriers to coordination, simply because of competition between the two modes.

Recommendations ~ As a geiteral principle the.European

>,. UJlion ·should· w.ork toward,s·1dentical <'•2osti1Ilp'iltation principi~s in: order to

\···avoid distortions of c0rnp~tition: l. ·• between modes of transport.

··-Decisions ort the allocation ot public ·. funds for transport infrast:t:ucture .·.should be based on a solid cost-benefit ·: analysis incorporating all relevant

economic and environmental (emis-.. sions, land use, etc.) fa~tor~ hi.'conjunc­

tion w~th such investmep.ts, without : ,, any discriminati0]1 bet:We~.rt modes.

:: lnvest.~.erits in .i~prqv~[lg'.tec~nical . . ,complelJierit~rity of differenf:rriodes·of.···

· ' ·transport irtfrastructureshould ·be .' given a pricifity, especially in con- . ~; · gested .areas. ·.· : · ·. · \The European Union shoidd: , -,Initiate and provide fina11cialsupport ' .•. for research. on improvement' of coor­

... dinatiori: of rail/ road/ a:ir·fransport _. : inch,lding freight tr~n.spo!i. f · · "~·-··;~_ .... ~--~·:, .. :.--~--..!....-., ...... _______ ~ ..... ~.--: ... ~.:·~....-,,.; ___ .__.- ~--

Air transport and government interference Background As an infant industry, air transport has been protected by governments and has remained for decades a part of government policy on foreign, economic and social issues. State ownership and government interference in the airlines' management decisions resulted in a number of statutory rules and con­straints, air carriers often being seen as providers of government-imposed services. For example, airlines were required to operate non-profitable routes, forced to purchase certain types of aircraft, bound by state-imposed pension schemes, etc.

Certain constraints have slowly been elimi­nated while others have been added. Immi­gration policy is a prime example of this situation. In order to control the flow of illegal immigrants into Europe, some Mem­ber States require airlines to check passenger travel documents. These Member States then impose fines which increasingly penalise airlines for the transportation of inad­equately-documented passengers. The result is a costly excess burden on the airlines.

All of these obligations imposed on airlines hamper their commercial freedom and are major obstacles to their ability to restructure themselves into normal commercial entities.

This does not mean, however, that the new regulatory environment in Europe necessi­tates total non-interference of governments. It does mean that any such intervention must be done in a transparent and nondis­criminatory way and that European air carriers must be compensated for the extra burden resulting from such interference.

For example, maintenance and development of regular air services on routes to periph­eral regions occasionally require government intervention. This remains entirely possible, under the Third Package, which sets out the criteria for such government intervention.

. .... ~.

APPENDICES The Regulatory Landscape

European Union Member States are parties to the 1944 Chicago Convention on Interna­tional Civil Aviation, which globally organ­ises international air transport. Member States are members of ICAO and remain committed to the principles and rules of the Convention. They have, for instance, ac­knowledged that every state has exclusive sovereignty over the airspace above its territory. Based on this and other provisions, and on the Annexes to the Convention updated by ICAO, all governments have exchanged traffic rights in numerous bilat­eral air transport agreements, thereby creating a closely knit network of arrange­ments that contain a substantial set of derived customary rules. These rules are binding to the parties to such agreements, in addition to the rules multilaterally agreed in the Convention.

It is a fact that almost all countries of the world have adhered to the Convention and are, in one way or another, bound by more or less similar exclusive bilateral rules, with the exception of recent liberal agreements.

Yet a distinction must be made between the Chicago Convention and the bilateral agree­ments.

The Convention is a general framework, based on largely political considerations, containing firm principles of law: state sovereignty, nationality of aircraft, equal opportunities and equal treatment for all countries, mandatory provision of air navigation facilities, etc.

Bilateral agreements deal with the provision of air services between country pairs, the Convention having failed to achieve a multilateral framework for the sharing of the freedoms of the air. Bilateral agreements contain principles and rules not to be found in the Convention, most often more restric­tive than the Convention itself: for instance, the clause that requires substantial owner­ship and effective control of designated carriers to be in the hands of the designating state or of nationals of that state, (the so­called "nationality clause"), the predetermi-

nation and apportionment of capacities to be provided on the agreed services, etc.

The Chicago Convention operates on the principle of equal opportunities and leaves all countries free to choose the manner in which they will use those opportunities in the market place, provided the principles and rules of the Convention are observed.

The Convention does not oppose multilat­eral arrangements for the exchange of rights or the setting up of multinational operating agencies. On the contrary it contains provi­sions to facilitate joint operating organisa­tions and pooled services (Chapter XVI). Indeed the founding fathers of the Conven­tion had in mind to reach one day a multilat­eral air transport agreement (which some of them even tentatively signed in 1944, to­gether with the Convention).

The philosophy of the Convention is there­fore compatible with a multilateral open regime of traffic rights, even though some clarification of the terms of the Convention may be helpful to apply it in the case of a regional arrangement of that nature.

The main difficulties for international law arising from regulatory changes, such as those occurring on the European scene relate to bilateral agreements, many of which reflected over the years the increasingly directive, protectionist and competition restrictive policies followed by governments.

Such agreements contain provisions now acknowledged as incompatible with the EU Single Aviation Market (such as the national­ity clause for designation of airlines, manda­tory commercial arrangements between designated carriers etc.). Member States are obliged, according to article 234 of the Rome Treaty, to take all appropriate steps to eliminate the incompatibilities. In other words, bilateral agreements must be renego­tiated when necessary.

The aviation landscape has changed radi­cally with the globalisation of the economy and the maturity of the air transport indus­try itself. Obviously, many countries, par­ticularly in the developing world, still need

some protection for their air transport industry and will, as they are free to do, retain their bilateral agreements.

Others can enter into liberal arrangements under the umbrella of the Chicago Conven­tion and revise their bilateral agreements to the extent necessary or simply render them irrelevant among themselves in a defined geographical area as the EC partners have done in 1992. The passage to multilateralism will not happen overnight, but a gradual transition may make a number of provisions in bilateral agreements either irrelevant or obsolete.

A blueprint for global air transport does not exist at the moment. The Chicago Conven­tion is hospitable enough to accomodate differing air transport agreements that are based on free participation, equity and common understanding.

Statistics

IDENTIFIABLE DIFFERENCES IN COST STRUCTURES OF EUROPEAN AND US SCHEDULED AIRLINES

CATEGORY EUROPEAN/US AIRLINE DIFFERENCE

Overall operating European airline costs 21 cents/ ATK costs or 45% higher than US

DOCs 4 cents or 20% higher roes 17 cents or 65% higher

TRENDS

European unit costs increased by about 2% p.a. during 1988-92, US costs by 4% p.a.

Labour and social European costs 5.7 cents/ ATK or 3% higher European costs per ATK, costs zero growth 1988-92,

US grew by 3.5%

REMARKS

European cost disadvantage concentrated in passenger services, ticketing

Average labour cost per employee 6% higher and administration productivity 23% lower European productivity

grew by 5%, US by 1% Social charges now more of a

Gross salary per employee 10% higher, burden in US social costs 10% lower European gross salaries have risen by

5% p.a., US by about 3% p.a.

European social charges have risen at under 4% p.a., US by over 10% p.a.

Fuel costs and fuel- European costs 0.4 cents/ ATK or 6% higher Same trend as in oil market but

related charges temporary differential of 4 cents/ gallon developed between

Per gallon costs up to 15% higher Europe/US in 1991/92

Airport charges European charges 2.6 cents/ ATK or 3 times higher

Costs per capacity-tonne 5 times higher

Navigation charges European charges 2.3 cents/ ATK or 10 times higher

Source: Avnwrk Notes: Unit costs on a provisional 1992 basis

Airport fees rising at roughly the same rate in both regions, 5% p.a.

Double digit increases in same Eurocontrol countries

No charges in US domestic market

Generally consistent relationship between average national salaries and airline salaries

Higher prices reduce benefit of Europe's more fuel efficient fleet

High fuel-related charges in France, Germany and Italy

International charges still apply for cross-border intra-EC flights

Terminal navigation charges in US paid by passenger via 10% domestic ticket tax and international ticket taxes Immigration and customs charges paid by passengers via international ticket taxes in US

En route charges in US are

funded by passenger via 10% domestic ticket tax and international ticket taxes

Airline operating costs per ATK (1992 vs 1991)

ATK Average stage length Total operating costs Expenses per ATK Monetary

million km million$ cent Fluctuation

1991 1992 92/91 1991 1992 92/91 1991 1992 92/91 1991 1992 92/91 92/91

British Airways 12 925 14 636 +13.2% I 1 476 1 605 +8.7% 7 699 7 928 +3.0% 59.6 54.2 -9.1% +2.5% British Airwavs Lufthansa 13 006 14 469 +11.3% 1 082 1 292 + 19.4% 9 224 9 977 +8.2% 70.9 69.0 -2.8% +6.0% Lufthansa Air France 10 376 12 038 +16.o% I 1 465 1 424 -2.8% 6 304 8 131 +29.0% 60.8 67.5 +11.2% -6.4% Air France KLM 6 767 7 999 +18.2% I 1911 1 919 +0.4% 3440 3 712 +7.9% 50.8 46.4 -8.7% -7.4% KLM Alitalia 4 539 5 216 +14.9% 1 117 1 134 +1.5% 3 629 3 828 +5.5% 80.0 73.4 -8.2% -4.8% Alitalia Iberia 4 673 4 951 +5.9% 1 103 1 103 +0.0% 3 329 3 630 +9.0% 71.2 73.3 +2.9% +36.3% Iberia

Swissair 3 907 4 357 + 11.5% 1 177 1 233 +4.8% 3 391 3 544 +4.5% 86.8 81.3 -6.3% -4.1% Swissair SAS 3 074 3 180 +3.4% 783 784 +0.1% 3 391 3 748 +10.5% 110.3 117.9 +6.9% -2.8% SAS Virgin 1 739 1 869 +7.5% 7 085 7 085 +0.0% 550 693 +26.0% 31.6 37.1 +17.3% +2.5% Virgin Sabena 1 617 1 614 -0.2% 1 058 988 -6.6% 1 754 1 741 -0.8% 108.5 107.9 -0.6% -5.8% Sabena Finnair 1 589 1 539 -3.1% 1 087 1 084 -0.3% 902 820 -9.2% 56.8 53.3 -6.2% +13.6% Finnair

TAP 1 376 1 474 +7.1% I 1 476 1 660 +12.5% 1 114 1 356 +21.7% 81.0 92.0 +13.6% -8.0% TAP

Austrian 670 845 +26.2% I 980 1 102 + 12.4% 700 859 +22.7% 104.6 101.7 -2.8% -5.3% Austrian Aer Lingus 739 752 +1.9% 592 621 +4.9% 457 447 -2.3% 61.9 59.4 -4.1% -3.6% Aer Lin2:us British Midland 409 453 +10.8% 517 517 +0.0% 478 563 +17.9% 116.7 124.2 +6.4% +2.5% British Midland Total Europe 67 407 75 393 +11.8% 46 363 50 978 +10.0% 68.8 67.6 -1.7% Total Europe

American 25 921 30 297 +16.9% 1 730 1 842 +6.5% 12 081 13 658 +13.1% 46.6 45.1 -3.3% American United 24 834 28 084 +13.1% 1 479 1 590 +7.5% 12 151 13 165 +8.3% 48.9 46.9 -4.2% United Delta 21 738 26 192 +20.5% 1 105 1 207 +9.2% 10 329 12 465 +20.7% 47.5 47.6 +0.2% Delta Continental 14 212 14 416 +1.4% 1 319 1 390 +5.4% 5 553 5 404 -2.7% 39.1 37.5 -4.1% Continental US Air 10 893 11 355 +4.2% 798 848 +6.3% 6 251 6611 +5.8% 57.4 58.2 +1.5% US Air

I Southwest 3 523 4 088 +16.0% 603 616 +2.2% 1 252 1 503 +20.1% 35.5 36.8 +3.5% Southwest Total US 101122 114 431 +13.2% 47 616 52 806 +10.9% 47.1 46.1 -2.0% Total US

Source: Avmark

I AIRLINE OPERATING COSTS PER ATK (1991)

ATK flight laintenance Depreciation Total Aiport En-route Handling Passenger Ticketing. Other Total Total operations and and direct user navigation costs services sales expenses indirect operating expenses overhaul amortisation operating charges charges exposures and operating costs

expenses expenses costs promotion costs (DOC) expenses (lOCI

5 Bn cent/ATK cent/ATK cent/ATK cent/ ATK cent/ ATK ccnt/ATK cent/ATK cent/ATK cent/ATK cent/ ATK cent/ATK cent/ ATK

Lufthansa 13.0 15.8 10.2 5.4 31.4 3.4 2.3 7.6 7.8 12.9 5.1 39.0 70.4 Lufthansa British Airways 12.9 12.3 5.3 2.7 20.2 5.6 2.1 5.0 8.0 11.2 8.1 39.9 60.1 British Airwavs Air France 10.4 14.5 5.3 5.0 24.7 2.8 1.4 6.9 6.7 8.2 9.8 35.8 60.5 Air France Iberia 4.7 17.3 6.9 4.7 28.9 3.0 2.2 7.9 9.0 17.1 2.1 41.4 70.3 Iberia Alitalia 4.5 16.8 10.3 4.8 31.9 2.6 2.6 10.9 10.3 13.7 8.5 48.4 80.4 Alitalia Swissair 3.9 17.5 12.7 6.7 36.9 3.4 2.6 13.1 11.4 16.8 2.3 49.7 86.5 Swissair SAS 3.0 23.1 13.0 4.5 40.6 9.6 3.1 15.0 6.5 20.9 15.8 71.0 111.6 SAS TAP 1.4 23.8 9.1 2.3 35.1 2.0 2.8 5.5 7.2 10.9 17.4 45.8 80.9 TAP Aer Lingus 0.7 17.3 13.3 5.4 36.0 11.5 3.7 12.7 11.8 13.9 6.4 59.9 95.9 Aer Lin2:us

I Britannia 2.5 12.2 4.1 0.9 19.7 4.3 2.6 2.5 2.5 0.0 1.7 13.6 33.3 Britannia British Midland 0.4 23.4 7.2 2.9 34.0 17.8 5.6 5.8 13.0 10.51 6.4 59.1 93.2 British Midland Meridiana 0.2 28.3 10.7 8.8 48.0 4.4 3.4 19.3 9.3 13.7 10.2 60.3 108.3 Meridiana

American 26.0 13.4 5.1 3.2 21.6 0.9 0.2 7.3 5.1 8.7 2.8 24.9 46.5 American United 24.8 14.2 6.1 2.6 22.8 0.9 0.2 6.0 5.4 12.4 4.2 29.0 51.8 United Delta 21.8 14.8 4.4 2.6 21.8 0.9 0.1 7.5 5.4 10.1 1.7 25.6 47.4 Delta Continental 14.2 11.9 5.2 1.3 18.4 0.8 0.2 4.9 3.6 6.7 3.9 20.1 38.5 Continental USAir 10.9 18.1 7.0 2.6 27.7 1.0 0.0 9.2 6.4 10.0 2.8 29.4 57.1 USAir Southwest 3.5 11.0 3.5 2.2 16.7 1.0 0.0 4.5 2.3 5.0 3.1 15.9 32.6 Southwest

TAL 112.5 17.4 6.4 6.2 29.9 2.6 2.2 7.5 7.9 11.0 3.0 34.3 64.2 lAL Singapore I 7.2 8.8 3.4 5.0 17.2 1.9 2.9 5.7 6.4 1.3 18.2 35.4 Sin2:aoore Oantas I 5.8 14.7 4.9 2.4 22.0 1.2 1.2 4.9 5.3 8.2 2.0 22.9 44.9 Oantas

' ,,, .. Source. Avmark

Profitability of AEA airlines

us$ 000 1990 1991 1992 Net result Turnover Net result Turnover Net result Turnover I

AerLimms 8 300 1 235 500 -18 500 1 351 900 -195 600 1 381 000 Air France -132 100 10 465 900 -121 416 10 196 200 -617 000 10 769 400 Air Malta Alitalia -81 700 4 592 000 -27 900 4 750 400 -11 900 5 510 700 Austrian 11 500 817 700 11200 847 400 100 1 003 800 Balkan BA 169 600 8 812 900 687 300 9 090 000 297 700 9 307 700 CSA 44700 294 000 Cyprus Fin nair -18 800 1 463 900 -13 200 1 285 000 -16 800 1132 200 Iberia -137 700 3 695 300 -346 800 3 706 300 -339 800 4136 700 Icelandair TAT -46 500 545 400 -104 900 412 600 KLM -346 900 3 609 000 66200 4 189 000 -319000 4 666 300 Lufthansa 9400 8 962 800 -257 700 9 746 100 -250 400 11 036 500 Luxair 600 252 600 Malev 10400 267 000 16100 298 000 300 338 600 Olympic -164 300 940 900 -133 900 828 500 -224 800 922 500 Sabena -205 700 1 065 200 -68 600 1 533 200 11 700 1 708 300 SAS -144 800 5 331 600 -239 000 5 806 800 -127 400 5 908 200 Swissair -15 900 3 778 600 57900 4 146 200 80 700 4 438 500 TAP -15 300 860 500 -38 000 1 041 000 -199 800 1 110 100 THY -20 900 653 900 -156 400 511 100 -87 300 736 500

-1 076 700 57 392 100 -687 616 59 739 700 -1 998 700 64359 600 -1.88% -1.15% -3.11%

Source: Airline Business, ICAO

Labour productivity of individual air carriers

Carrier ATK per employee Productivity increase (1992) 1988-1992

Europe Aer Lingus 144,136 7.76%

Air France 289,170 1.52%

Alitalia 279,617 7.64%

British Airways 298,939 6.91%

Iberia 172,244 5.18%

KLM 325,635 6.41%

Lufthansa 291,196 2.92%

SAS 172,650 6.69%

Swissair 220,204 4.89%

TAP 132,557 3.11%

us American 332,256 2.38%

Continental 412,181 -2.37%

Delta 330,888 2.76%

United 357,454 2.20%

US Air 248,505 1.23%

Southwest 372,482 5,21%

Source: Avmark

The Comite's Working Programme Plenary meetings of the Comite June 22 1993 July 91993 July 271993 August 30 1993 September 27 1993 October 21 1993 November 18 1993 December 10, 11, 12 1993 December 22 1993

Co-rapporteurs' meetings External Affairs: October 1 1993 October 28 1993 Financial Matters: October 5 1993 October 25 1993 Intra-European Affairs: October 8 1993 Infrastructure: October 11 1993 Harmonisation: October 18 1993

Industry hearings September 9 1993 (16 presentations) September 16 1993 (12 presentations)

Press conferences July 13 1993 August 5 1993

Presentation of the Chairman to the Council of Ministers November 30 1993

Presentation of the Chairman at the 49th lATA Annual General Meeting November 2 1993

Meetings of the Chairman - Bernard Attali, Chairman,

Groupe Air France - Pierre Godfroid, Chairman, Sabena,

June 151993 - US Mission to EC, July 15 1993 - Eric Kirsch, Administrateur General,

RLW-RVA Belgium, August 9 1993 - Sir Colin Marshall, Chairman,

British Airways, August 11 - Rene Lapautre, former UTA Chairman,

August 19 1993 - Baudouin Gillis, Administrateur-delegue,

Wagons-lits Travel, September 1 1993 - Abel Matutes, Member of the European

Commission, September 20 1993 - Robert L. Crandall, Chairman and

President, American Airlines, September 22 1993

- Secretary Federico Pena, US Department of Transportation, Brussels, October 5 1993

- Pierre Godfroid, Chairman, Sabena, October 14 1993

- Abel Matutes, Member of the European Commission, November 24 1993

- Karel Van Miert, Vice President of the European Commission, November 25 1993

- Jacques Broquin, President, Federation Internationale des Cadres des Transports (FICT), Paris, December 2 1993

Washington mission July 231993 The Chairman, Herman De Croo, was accompanied by:

Geoffrey Lipman, Guillermo Serrano, Eckard Seebohm

Meetings were held with: James E. Landry, Air Transport Association Nat Wilson, Air Transport Association Gerald L. Baliles, Chairman of The National

Commission to Ensure a Strong Competi­tive Airline Industry

John H. Robson, Member of the International Issues team

Abraham D. Sofaer, Chairman of the Inter­national Issues team

Gina F. Thomas, Member of the Commission Sylvia A. de Leon, Member of the Commis­

sion Capt. J. Randolph Babbit, Member of the

Commission James Oberstar, Chairman of the Aviation

Subcommittee of the House of Representa­tives

" . ~'

Members of the Comite Herman De Croo, Chairman, Senator, former Belgian Minister of Transport

His Highness The Aga Khan, Majority Shareholder of Meridiana Pieter Bouw, President of KLM Royal Dutch Airlines Bjarne Hansen, President ofMaersk Air Geoffrey Lipman, President of the World Travel & Tourism Council Henri Martre, Member of the Board and former Executive Chairman of Aerospa­tiale Joao-Maria Oliveira-Martins, former Portuguese Minister of Transport Gonzalo Pascual, Chairman of Spanair Manfred Scholch, Vice Chairman of the Executive Board of Frankfurt Airport Guillermo Serrano, Chairman of the Board of Amadeus Rene Valladon, Chairman of the Joint Civil Aviation Council (Union «Force Ouvriere") Jiirgen Weber, Chairman of the Executive Board of Lufthansa German Airlines

Observer of the European Commission Daniel Vincent, Director, Directorate­General for Transport

The staff Secretariat The European Aviation Club ASBL Prof. Jacques Naveau, Brussels University, Chairman Andre Clodong, Director Sylvie De Schryvere, Assistant

Advisory support and liaison with the European Commission Eckard Seebohm, Principal Administrator, Directorate-General of Transport, Air Transport Policy Unit, European Commission Christopher Ross, Directorate-General of Transport, Air Transport Policy Unit, European Commission

GLOSSARY ACE Association des Compagnies Aeriennes de la Communaute Europeenne AEA Association of European Airlines APATSI Airport/ Air Traffic Systems Interface ASK Available Seat Kilometres. The number of seats made available for sale multiplied by the distance flown ATC Air Traffic Control ATK Available Tonne Kilometres. The number of tonnes of capacity available for the carriage of revenue load (passengers and cargo) multiplied by the distance flown Bilateral Air Transport Agreement Agreement that regulates air services between two countries Cabotage The carriage of traffic between two airports which are located within one country Capacity In relation to aircraft: the payload of an aircraft available. In relation to air services: the capacity of the aircraft used on such services, multiplied by the frequency over a given period on the air routes considered Chapter 3 ICAO noise standard Chapter 11 Provisions of the US bankruptcy law that set out conditions under which entreprises in default may continue their activities while restructuring CNS/ATM Communications, Navigation and Surveillance/ Air Traffic Management (formerly FANS) Code Sharing An agreement between two airlines to use the designation code of one airline on a flight operated by the other airline Coordinated Airport An airport where a coordinator has been ap­pointed to facilitate the operations of air carriers operating or intending to operate at that airport, as per EC Council Regulation 95/93 Fully Coordinated Airport A coordinated airport where, in order to land or take off during the periods for which it is fully coordinated, it is necessary for an air carrier to have a slot allocated by a coordinator, as per EC Council Regulation 95/93 CRS Computer Reservation Systems EAT CHIP European Air Traffic Control Harmonisation and Integration Programme ECAC European Civil Aviation Conference Eurocontrol European Organisation for the Safety of Air Navigation

FANS Future Air Navigation System (now CNS/ ATM) FFP Frequent Flyer Programme lATA International Air Transport Association ICAO International Civil Aviation Organization Interlining Acceptance by an air carrier of traffic documents (tickets, airwaybills, etc.) issued by another, without additional charge to the passenger or the shipper; normally on a reciprocal basis through agreements providing also for uniform proce­dures of reservation, re-routing etc. JAA Joint Aviation Authorities. Set up by ECAC to harmonise air transport regulations and standards Load factor The percentage relationship of revenue load carried to capacity provided. The overall load factor relates RTK to ATK. The passenger load factor relates RPK to ASK Overcapacity Offer (available payload) structurally in excess of demand (cfr.: capacity) RPK Revenue Passenger Kilometres. The number of revenue passengers carried multiplied by the distance flown RTK Revenue Tonne Kilometres. The revenue load (passengers and cargo) in tonnes multiplied by the the distance flown Slot The scheduled time of arrival or departure available or allocated for an aircraft movement on a specific date at an airport TKP Tonne Kilometers Performed Trans European Networks (TEN) According to the Treaty on European Union (Title-XII), infrastructure networks shall be established and developed in the areas of trans­port, telecommunications and energy. The main objective of TEN will be interoperability of national networks, linkage between central, island landlocked and peripheral regions of the European Union, as well as ensuring interconnec­tions with Third-Countries. These networks will be financed by Member States budgets, private resources and European Union financial instru­ments. The Commission's White Paper (Brussels, December 1993) emphasises the priority to be given to TEN in restoring growth, competitive­ness and employment in Europe.

Note: the submissions received by the Comite have been compiled in an annexe to the Report of the Comite. This annexe is available from the Directorate-General of Transport, European Commission

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Copies of this report can be obtained from:

European Commission Directorate-General of Transport rue de la Loi, 200 B-1049 Brussels

The contents of this report do not necessarily reflect

the official views of EU Institutions

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